Q71.

How does the government monitor offset contracts?

71a. Policies & procedures

Score

SCORE: 0/100

Assessor Explanation

Offset contracts are not regulated in Kosovo’s current legal framework. It is important to emphasise that there is no evidence that offset contracts occur in practice [1].

Assessor Sources

[1] Interview with Interviewee 7: Procurement Expert, Prishtina, 18 September 2019.

71b. Transparency

Score

SCORE: 0/100

Assessor Explanation

Offset contracts are not regulated in Kosovo’s current legal framework. It is important to emphasise that there is no evidence that offset contracts occur in practice [1].

Assessor Sources

[1] Interview with Interviewee 7: Procurement Expert, Prishtina, 18 September 2019.

71c. Monitoring

Score

SCORE: 0/100

Assessor Explanation

Offset contracts are not regulated in Kosovo’s current legal framework. It is important to emphasise that there is no evidence that offset contracts occur in practice [1].

Assessor Sources

[1] Interview with Interviewee 7: Procurement Expert, Prishtina, 18 September 2019.

71d. Enforcement

Score

SCORE: 0/100

Assessor Explanation

Offset contracts are not regulated in Kosovo’s current legal framework. It is important to emphasise that there is no evidence that offset contracts occur in practice [1].

Assessor Sources

[1] Interview with Interviewee 7: Procurement Expert, Prishtina, 18 September 2019.

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No information on offset contracts is made available to the public. None of the institutions contacted or interviewees were able to provide information on offset contracts [1].

In the absence of offset contracts no transparency procedures have been adopted [1].

In the absence of offset contracts no monitoring procedures have been adopted [1].

In the absence of offset contracts no enforcement of track records exist [1].

As answered in question 70, no evidence was found that the country has specific regulations for offset contracts. Reports published before 2016 stated that Algeria does not have a specific offset policy (1), (2). A review of laws and regulation published in the Official Gazette showed no evidence that Algeria has passed a policy during the last years (3). Also, the Law of Public Procurement of 2016 does not specify any offset policy for the defence and security sector (4).

Overall supervision is conducted by the National Public Procurement Service (SNCP) of the Finance Ministry, which was set up in 2015. The offset contracts law lays out standards of delivery and penalties (Art. 21-25) (1), (2). However, there is no public knowledge of how these procedures have been handled.

The rules of publication for offset contracts are the same as for public contracts, depending on the method applied (1). So far there is no public record of any contract with an offset arrangement.

There is no evidence to show that procurement offices are conducting reporting and delivery obligations at all.

There is no evidence to show that breaches of contract are acted upon.

There is still no legislation in Argentina regarding offset agreements. Moreover, as Aldazabal and Breerton point out, that is a “long-standing requirement, coming from local industrial entrepreneurs and producers,” especially in the field of defence where the authors indicate that “in the fields of war material and communications Argentina lost 30 years of development potential.” [1] [2]

The concept of offset contracts has no definition in the Armenian legislation. It has also never appeared in the media outlets [1].

This indicator is scored ‘Not Applicable’ given Australia does not allow offsets to be a part of public procurement contracts.

The legislation on offset contracts is very weak. There are no serious rules about offset contracts. The Law on the Rules of Conclusion, Execution and Termination of International Agreements and Regulations on the Financial Monitoring Service do not contain any specific provisions regarding the issue (1, 2).
The Azerbaijan Chamber of Accounts does not provide any information on offset contracts. In the “Laundromat” study, prepared by the International Research Group in 2017, it was noted that the Russian military-industrial complex (Rosoboronexport) had sent suspicious payments to the family of the high-ranking official of Azerbaijan (3). The Government of Azerbaijan, the Chamber of Accounts and other structures did not disclose any information. Zohrab Ismayil believes that it is important to make changes to existing legislation on the issue (4).

President Ilham Aliyev in an interview with the Russian press in 2016 said:

“We purchase weapons, in addition to Russia, in Turkey, Iran, Belarus, Israel, and some other countries. And seriously enough. And we also have an intention to buy weapons in Pakistan, given that Pakistan’s military industry is sufficiently developed, and this is a very friendly and close to us state. But our main partner in this business is Russia. With Russia, contracts were made, if I’m not mistaken, about five billion dollars, and most of these contracts have already been implemented” (1).

Azerbaijani officials are satisfied with providing this type of general information. Offset contracts are not transparent, and details are not disclosed. Figures, funds, contractors, prices are not transparent. Natig Jafarli thinks that there is serious corruption in this area (2). An international investigation shows corruption in Azerbaijan’s relations with Rosoboronexport (3). Officially Baku sends information on arms imports to the UN Register of Conventional Arms (4).

Offset contracts are not transparent, and there is no information on delivery obligations and problems. Procurement offices do not report on this process (1). Sometimes the Ministry of Defence’s website states that the weapons and military equipment imported from the countries have been brought to Azerbaijan. However, it is very general information (2, 3). No official information on the official websites of the Ministry of Defence Industry is available.

The government does not provide any information regarding the rules for conducting offset contracts. From this point of view, there is no information on breach or non-breach of contracts (1).
In 2016, the Azerbaijani and Russian press reported that there were problems between the two countries in the military-technical cooperation sectoe. Baku had difficulty paying for military equipment. However, the information was not officially denied or confirmed.

There are no policies or procedures concerning offset contracts. The absence of such policies has affected the way such contracts are being conducted. Each contract is different and managed via different procedures [1, 2].

All details about Ministry of Defence (MoD) procurement, including offset or non-offset contracts, are considered confidential. Therefore, there is no data available for the public [1, 2]. Following a search of the websites of the Parliament, the MoD, the Ministry of Finance, the government and other media sources, and then verified by interviewees, no further information on this subject could be found.

As most of the offset contracts for strategic weapons and based on political allies and political pressure form exporting nations, there is no reporting on deliveries or quality assurance [1, 2]. Following a search of the websites of the Parliament, the MoD, the Ministry of Finance, the government and other media sources, and then verified by interviewees, no further information on this subject could be found.

Although most offset contracts are large and politically-motivated, in rare cases, some actions may be taken as a result of a lack of quality or breach of the contract. These deal mostly with logistics [1, 2].

There are no formal policies or procedures that outline the reporting and delivery obligations for offset contracts [1].

There is not enough information to score this indicator as it was not possible to ascertain whether any offsets occur. No publicly available information on offsets was found [1].

There is not enough information to score this indicator as it was not possible to ascertain whether any offsets occur [1].

There is not enough information to score this indicator as it was not possible to ascertain whether any offsets occur [1]. In the absence of any official records, it is difficult to ascertain whether breaches of contract are acted upon.

While policies and procedures that outline the reporting and delivery obligations for offset contracts are drawn up by the Federal Public Service Economy, they are not publicly available [1, 2].

The government does not make any details about off-set contracts transparent [1]. However, civilians may request information based on the Law of Freedom of Information [2].

Officials in the FPS Economy regularly produce a completion report with supplier performance appraisals, but these reports are not publicly available [1, 2].

Action is always taken if a contract is not sufficiently completed. However, as this concerns the essential security interests of the country, these cases are not publicly available [1,2]. Therefore, as no evidence of enforcement can be cited, this indicator is not scored and marked ‘Not Enough Information’.

There is no legislation regarding offset contracts. The Ministry of Defence (MoD) does not negotiate offset contracts [1, 2, 3, 4]. “The PPL defines procedures which describe “operationally necessary” and “single source” procurement exceptions. Some 90% of procurement is conducted under open procedures while there were no classified procurement tenders in 2013. The MoD does not now use agents or intermediaries for procurement and offsets are not used in BiH.” (NATO: Building Integrity: Process and impact, Bosnia and Herzegovina, p. 23, paragraph 43) [3, 4].

There is no evidence of a policy or procedure on offset contracts. The law is also silent on this matter [1,2]. There is evidence to suggest that the Government of Botswana is reviewing this legislation to include offset provisions in the future [3].

There is no evidence of any public information on offset contracts. There are no provisions in the law covering this matter [1,2].

There is a 2018 policy that regulates offset contracts for defence acquisitions [1]. It establishes additional guidelines for Public Procurement Law 8.666/1993 and gives more details about offset contracts which were already mentioned in Law 12.598/202 [2], which aims is to induce a stronger industrial defence base in Brazil. The policy for offset contracts does not mention specifics of how often reports should be presented, nor specific sanctions. However, the Army’s Internal Control Manual [3] establishes report standards that apply to all contracts, including offset ones. The other single forces have similar internal control structures. There is no specific manual for offset contracts.

There is not a general list with all offset contracts for defence purchases. One can search the offset contracts in the Ministry of Defence’s (MoD) annual report, sent to the Court of Auditors (TCU). The assessor could only find information on offset contracts in the 2017 report [1]. One can also find offset contracts (search for “acordo de compensação”) in the single forces’ annual reports [2]. These documents are not always easy to find if one does not know their name [3].

The Ministry of Defence and the different branches of the military produce annual reports regarding contracts of all types, including offset contracts, these are sent to the external control institution, which is the Court of Auditors (TCU) [1, 2].

The assessor could not find evidence in the media or official websites that in all the cases of contracts where the agreed-upon terms were not sufficiently completed, resulted in actions from the government. It is known that the TCU searches for these types of flaws [1, 2]. According to military interviewees, these contracts receive the same treatment as other contracts, which are all subject to enforcement [3]. Given the lack of available information on this issue, it is not possible to score this indicator and, as such, it is marked ‘Not Enough Information’.

While the United State Department of State confirms the existence of offset contracts in Burkina Faso, the practice remains informal. The procurement legislation does not reference offset contracts, and there are no existing policies or procedures that clearly outline the performance, reporting and delivery of obligations in offset contracts. Burkina Faso imports arms and a great part of its military equipment. The purchase of these items inevitably creates obligations and rights on both bidders/contractors and contracting country. This is where offset contracts are likely to be generated. Unfortunately, no information with regards to what extent the government manages offset contracts is available (1), (2), (3).

In absence of any law, policy or procedure applying to offset contracts, the government of Burkina Faso does not reveal information about offset contracts, although it continues to encourage foreign investments. The 2013 Investment Climate Statement of the US Department of State, states that “the Government of Burkina Faso (GOBF) wishes to attract more foreign direct investment (FDI) and has been implementing, over the years, reforms to make Burkina Faso more attractive to international investors” (1). It appears that the government of Burkina Faso does not look much what is happening with offset contracts. Since the government does not share much information, the rights and obligations pertaining to offset contracts are not made public (2), (3), which makes it difficult to assess their overall performance.

Again, there is not a legislation, policy or procedure for offset contracts. Foreign suppliers can have their bids approved no matter they invest in the country or not, as the government does not impose offset requirements (1). Hence, the lack of legislation and the waiver on offset requirements are not much in favour of the reporting, monitoring and delivery of offset contracts. Therefore, procurement offices are not conducting any reporting and delivery obligations. Yet, the Regulatory Authority for Public Orders (ARCOP), works on the basis of the powers and rights Law N° 039 (2016) and Decree N° 0049 (2017) (2), (3).

According to the United States Department of State (2013), “the GOBF does not impose “offset” requirements, which dictate that major procurements be approved only if the foreign supplier invests in Burkinabè manufacturing, research and development, or service facilities in areas related to the items being procured” (1). Thus, offset contracts are not being regulated. Procurement legislation is mute about offset contracts, and breaches of contracts are not acted upon. In general, law enforcement is weak (1), which is nurturing corruption in all economic sectors (2), (3).

There are no known formal policies or procedures that outline the reporting and delivery obligations for offset contracts. Such policies and procedures are unlikely to exist, as all defence and security procurement is exempt from oversight as per articles 4 and 71 [1].

The government does not make any details about offset contracts transparent. Information about defence and security contracts between the government and applying companies is not public as defence and security procurement is conducted as ‘special contracts’ as per articles 4 and 71 of the Code (2018) [1]. While information about such contracts is sometimes released by supplying companies or by the media [2], such releases do not provide enough insight into offset contracts.

Defence and security procurement is exempt from oversight as per articles 4 and 71 of the Code (2018) and there is no evidence of contract monitoring taking place.

Contracts between companies and the government are exempted from the provisions of the Public Procurement Code (2018) as per articles 4 and 71 [1] and are not made public, which makes it difficult to evaluate to what extent breaches of contracts are addressed [1]. However, Articles 170, 172 and 197 make provisions for “a bidder who feels cheated during the contract award procedure to file a petition concerning the stage of the procedure to the contracting authority, assigned contracting authority or Committee in charge of examining petitions. For the petition to be admissible, it must contain the facts in relation to violations of the Public Procurement Code, rules relating to the award of contracts and the consultation file concerned” [1]. However, defence and security procurement is exempt from oversight and there is no evidence of contract monitoring taking place or of breaches of contract being acted upon.

There are policies and procedures that outline the reporting and delivery obligations for offset contracts, but it is unclear that they address all activities listed (i.e. following chain of command). The ITB Branch provides an illustration of a Verification Service Standard. [1] Also, According to the ITB policy, “contractors report annually to Innovation, Science and Economic Development Canada on their progress in meeting their IRB and ITB obligations. These reports include updates on specific investments in Canada which, upon verification by Innovation, Science and Economic Development Canada officials, are credited against outstanding IRB/ITB obligations.” [2] There is a clear policy for how contractors can use and facilitate ITB contracts and for keeping track of the progress and quality of work, as well as clear guidelines for third parties and new compliance monitoring procedures from ISED ensure procedures and policies are followed. [1] [2] [3] If a contractor defaults on its ITB obligations, there are legal remedies [3] [4]

Some of the progress on fulfilling ITB obligations is published online, details of which are basic (ie. highly aggregated), and include some information of the investments and supplying companies. There are ITB projects where financial investment tracking is not clearly indicated, such as for Projects: “Halifax-Class Work Period Support Service Contracts – Davie”, “Halifax-Class Work Period Support Service Contracts – Irving Shipbuilding”, and “Halifax-Class Work Period Support Service Contract- Seaspan Victoria Shipyards Ltd.” [1]

Completed ITB obligations are publically reported in a highly aggregated manner online [1]. In an effort to streamline the monitoring process and decrease the bureaucratic burden for contractors, ISED has “increased staffing levels, developed new monitoring tools to track the timeliness of verification decision-making, and has significantly reduced the backlog of transactions awaiting verification.” [2] Additionally, ISED has implemented: an electronic template to facilitate annual reporting [3] [4] for prime contractors, standardised transaction verification mechanisms, transactions will now be credited as they are received, as opposed to all at once at the end of the process. Offset contracts are included within the primary contracts as a component to fulfill the ITB obligations of contractors and are subject to monitoring at that level [5].

According to GoC, “Since the establishment of the Policy in 1986, no Prime Contractor has failed to meet its ITB obligations. ISED works closely with Prime Contractors to ensure they are able to deliver on their ITB obligations, including Value Proposition commitments, over the life of a contract.” [1] The same mechanisms for enforcement exist for offset contracts given their integration into the primary bid. Breaches in contracts can result in the loss/termination of the contract. Furthermore, contracting authorities are permitted to consult their legal advisors to begin arbitration without the formal involvement of the Department of Justice or the Treasury Board Secretariat. [2] This process is then subject to Chapter VIII of the Commercial Arbitration Code. [3] Information on possible breaches of contract might be made available by Audit and evaluation reports at Public Services and Procurement Canada [4]. It is not clear if any possible breaches have been acted upon as several entities, including PSPC, are not listed as participating departments for public Access to Information and Privacy (ATIP) online requests. [5] Therefore this indicator is not scored and marked ‘not enough information’..

There are no policies for offset contracts in general, and the specific committee that oversaw them disbanded. The government of Chile is aware of the existence of offset contracts but has no actual regulation applying to them specifically [1, 2, 3, 4].

There has been a tradition of opacity in offset contracts and acquisitions in the defence sector. Early on, the authors identified the lack of transparency as one of the main challenges in the application of offset acquisition systems in defence [1, 2]. The final report on the Design and Capacity Building for the National Committee of Complementary Industrial Programs makes a summary account of the conceptual basis of the activities of industrial compensation, information provision, and evaluation in offset contracts in defence. However, neither the detail of the contracts nor substantive information of the process was available. It is also significant that Congress’ special committee that investigated irregularities in acquisition processes in the army could not examine offset procurement and contracts, particularly those that involve the acquisitions of F-16 aircraft, because the information was only delivered once the investigation period of the commission has expired [3]. The recent creation of a System of Evaluation for Acquisition Projects in the Ministry of National Defence (MDN) [4], implemented in 2018, should increase the transparency of the process, but observable results are not available for evaluation yet.

There is no evidence of completion reports with supplier performance appraisals for offset contracts. The lack of monitoring of contracts has been pointed out as one of the weaknesses of Chilean experience with this mechanism (Chile Transparente, 2016). There is some indirect evidence that points to the competition of contracts and relatively successful delivery of industrial compensation [2], but appraisal reports are not available. The MDN recently identified the need to create a monitoring structure for the investment system as one of its strategic objectives [3].

Article 13 of Law 19.866 grants the government the power to terminate a contract in cases of non-compliance [1]. However, there is not enough information about the enforcement of offset contracts. Descriptive accounts of the functioning of the offset mechanism in the defence sector provide some evidence about the completion of contracts and the delivery of compensation in the few cases reviewed [1, 2, 3]. Despite this, it is hard to derive from these examples the existence of effective enforcement in case of incomplete compliance with offset contracts.

As such, this indicator is marked ‘Not Enough Information’.

There are no specific policies or procedures (state or military) on monitoring offset contracts in China, [1] despite them having been used in government procurement for some time. [2] Offsets have provided significant gains to China, both financially and in terms of technology transfers, [3] while Chinese companies in the defence sector are increasingly using offsets to win contracts abroad. [4]

The government does not publicise details of offset contracts.

These reports, if produced, are not made public.

There are no instances of breaches of offset contracts that have been reported in the media.

The offset agreements of the defence sector include a series of formal policies and procedures that structure the duties and rights of both the supplier and the contracting party. There is the CONPES 3522 Document of 2008, [1] which specifies the industrial and social cooperation policy (OFFSET), and defines the general guidelines for the implementation of this type of agreement for the sector, including the requirements for the request for industrial and social cooperation related procurement; recipients of industrial and social cooperation to comply with the requirements of transparency, viability, and permanence; and two 10-year policy instruments, the framework agreement and the derivative agreement, which give guidelines for assessment, monitoring, and evaluation. [1] Directive 6 of 2009 defines the ministerial guidelines for compliance with the OFFSET policy related to the acquisition of defence material. [2] Directive 14 of 5 July 2007 sets the requirements for entering into this type of contract, the legal instrument to legalise these procedures, and project evaluation and selection process and approval. [3] The Procurement Manual, which defines the contractual procedure for direct contracting (includes offset agreements), implies the design and approval of the proposal and its managers, in addition to technical guidelines to carry out the supervision process. [4] Lastly, there is the OFFSET of the National Army. [5]

The topics related to the reports of the finished works and the treatment of the inadequate works are defined in approximately 13 steps: 1) follow-up on the derived agreement by a supervisor [4] Resolution 6302 from 2014; 2) development of a schedule of activities by the project supervisor; 3) issuance of end use certificate for the importation of goods and services, which is requested by the supplier to the supervisor, who will facilitate the procedure before the contracting department; 4) start of the import process; 5) pre-registration of material; 6) entrance to the warehouse once the good or service is pre-registered and entered it to the Army’s audit; 7) verification of the schedule of activities to be carried out by the supervisor of the contract, with the pros and cons of the execution of the agreement, and solutions for any inconveniences presented; 8) compliance with the agreement; 9) fulfillment of offset expectations, verified by a committee; 10) minutes of receipt; 11) technical arrangement, if the expectations are not met, a technical arrangement is made and a delivery time is established for full compliance with the contract; 12) supplier compliance, in which the supervisor makes bi-weekly reports, issuing concepts and observing strict compliance with the agreement made; and 13) non-compliance of the supplier, in which case the supervisor informs the technical director so that he can transfer it to the Chief of Logistics of the Army, to the Ministry of Defence’s planning and budgeting office, and to the industrial and social cooperation group, to force compliance. [5]

According to the Procurement Manual of the Ministry of Defence, [1] the framework agreements (OFFSET) are developed under the modality of direct procurement. Law 1150 of 2007 defines the structure of the procurement of goods and services in the defence sector that require reserved funds for acquisition and for contracts for scientific and technological activities. [2] Decree 1510 of 2013 regulates this Law and defines the main elements of this procurement model, [3] such as the issuance of an administrative act justifying the direct procurement, and in the case of the contracting of goods and services in the defence sector, defines that State entities are not obliged to publish documentation of the process. The acquisition in direct procurement must be made under market conditions without the need to receive several offers. The Decree also states that goods, works, and services derived from compensation must be acquired through industrial and social cooperation agreements, stipulated in Article 78. [3] The Transparency Act, Law 1712 of 2014, in Article 19, [4] defines a number of circumstances in which entities are exempt from publishing information, due to the reserved nature of said information, including in cases related to defence and national security, public security, international relations, etc. There is no evidence of details about offset contracts being published by the government.

Section 5.3.1.7 of Resolution 6302 of 2014 establishes the general monitoring requirements for procurement contracts. [1] These requirements apply to all direct purchases, and, as such, implicitly cover offset contracts. According to this section, all contracts will have an assigned intervenor or supervisor that will engage in monitoring and supervising. The Resolution specifies that monitoring refers to ‘technical monitoring,’ which requires specialized knowledge. Supervision requires the revision of the contract’s negotiation as well as the parties’ rights and obligations, in order to grant economic rights. Intervenors and supervisors submit monthly reports on the contract’s fulfilment, particularly regarding partial or final minutes, and providing for payment of fulfilled obligations. At the end of the contract, a “Liquidation Act” needs to be produced, noting modifications and supervening agreements by the parties. This Liquidation Act needs must be reviewed and accepted by the Directorate of State Procurement of the Ministry of Defence. The report is regularly issued as a legal requirement but there is not enough evidence that the report is separately verified.

The manual of industrial and social cooperation establishes a series of procedures that allow monitoring, including 1) elaboration of a schedule of activities by the project supervisor in compliance with the terms of the contract; (2) verification of the schedule of activities to be carried out by the contract supervisor, with the pros and cons of the implementation of the contract, and solutions to inconveniences; 3) follow-up on compliance; (4) compliance with offset expectations, with compensation confirmed by the committee appointed for this purpose; (5) minutes of receipt; (6) technical arrangement accounting for non-compliance with expectations; 7) supplier compliance, in which the supervisor makes bi-weekly reports, issuing concepts, and observing strict compliance with the agreement made; 8) non-compliance of the supplier, in which if there is no compliance the supervisor informs the technical director, and the Head of Logistics of the Army, the planning and budgeting office, and the industrial and social cooperation group, carry out compliance mechanisms. [2]

With regard to the performance of the contract, the manual of the Manual of Industrial and Social Cooperation [1] defines that if the good or service delivered does not meet the expectations of the procuring entity, a technical arrangement is made, and a delivery time is established for the total performance of the contract. If a non-compliance is filed, the supervisor shall inform the technical director, which is transferred to the the Head of Logistics of the Army, the planning and budgeting office, and the industrial and social cooperation group, carry out compliance mechanisms. There is no publicly available information on these proceedings. Given the lack of evidence regarding enforcement in practice, this indicator is not scored and is marked ‘Not Enough Information.’

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).

Suppliers are required to make an annual report on the status of delivery obligations to the Ministry of Industry, Business and Financial Affairs. This is done on the Ministry’s website and by standard templates. Further, 50% and 100% delivery milestone reportings are written into the contract. Fines are given if the supplier fails to meet these milestones [1, 2, 3].

Research did not identify any publicly available offset contracts [1, 2]. The website of the Danish Business Authority seemingly contains a summary of the outstanding industrial cooperation obligations (i.e. offset contracts) of the foreign suppliers, however the listing contained no information at the time of the assessment of this question [3]. Further, research did not identify publicly available offset contracts made in relation to the procurement of the new F-35 fighter aircrafts [4]. As part of the annual report to Parliament on the status of industrial cooperation, information on the number and value of offset contracts is published [5].

The Danish Business Authority delivers an annual report on the quantitative status and performance of the industrial cooperation, that is the offset contracts. The report is made for the Danish Parliament and is publicly available [1, 2]. The Ministry of Industry, Business and Financial Affairs orients the ‘Expert monitoring group for industrial cooperation’ (“Følgegruppen for industrisamarbejde”) on the status of industrial cooperation [3]. The monitoring group is composed by employees from the Danish Business Authority, the Confederation of Danish Industry (“Dansk Industri”), CO-Industri, the Ministry of Defence and DALO. The group is consulted on matters of sanctions against foreign suppliers, pre-approval of obligations performed as development projects and in decisions on leading cases (“principielle afgørelse”).

The annual report from the Danish Business Authority (DBA) on the perfomance of offset contracts states that the foreign suppliers’ execution of the obligations set in the offset contracts are in line with the contracts made. In 2019, DBA found that the performance of the 2018 contracts was satisfactory (1). As the offset contracts include stipulations on the financial sanctions for non-fulfilment of the 50% and 100% milestone obligations, breaches of contract must be considered to be enforced when relevant (2), (3).

According to our sources, there are no policies or procedures that outline how offset contracts should be handled (monitoring and documentation). As most of the off-set contracts are politically-driven, they are usually not followed by the necessary measures of monitoring and evaluation (1), (2), (3). The contracting party must deposit a copy of the offset contract with the external trade department as per Article 61 of Law no. 118 (1975) and Article 68 of the same law (4), there are no clauses in the relevant laws about how the government should monitor offset contracts.

The process of off-set contracts is confidential and secret. They are mostly non-transparent and not justified (1), (2), (3). According to Law no. 118 (1975), contracting parties need to deposit a copy of the offset contract with the external trade department (4), but there is no obligation for the department to publish the contract, these contracts have never been made public. However, some information related to offset agreements is sometimes found by the selling party, such as in the reports of arms deals published by the US Defense Security Cooperation Agency (5).

According to Article 86 of Law no. 182 (2018), the public agency must conduct an appraisal of contractors it has dealt with at the end of each financial year and publish this on the governmental etenders portal (1). However, the same article exempts processes that are required to be secret by “national security” considerations, which should be understood to include all arms procurements and their offset contracts as per Law no. 204 (1957) (2). There are no procurement officers responsible for monitoring or reporting on off-set contracts (3), (4), (5).

There are no known cases of sanctions against an off-set contactor. Most of the contractors are arms-exporting nations with strategic relations with Egypt, or the off-set contracts are politically-driven (1), (2), (3). Since these contracts are concluded secretly and are not monitored (4) there is no evidence or information about whether breaches of contract are acted upon or not.

There is not enough information to score this indicator.
From the couple of offset contracts implemented, there is evidence of reporting and making offset contract details public. All the main activities of the Ministry of Defence have to be reported in the Annual Report of the Ministry [3]. In 2007, after the signing of the offset contract, the annual report also included a thorough overview of the offset process and a list of details of the contract.

All the public activities related to the offset contracts in the defence field are outdated by now and based on the interview with the field expert [4], there are no plans to grant offset contracts in the near future.

There is not enough information to score this indicator.

There is not enough evidence to score this indicator.

According to a written response provided by the Headquarters of the Defence Forces, contract oversight is the responsibility of the Ministry of Defence. [1] However, details on the processes and procedures for reporting on completed work, for addressing inadequate work and for sanctioning are not publicly available. As such, this indicator cannot be scored and is marked ‘Not Enough Information’.

There is not enough evidence to score this indicator, as no publicly available data that would enable scoring was found through research. As such, this indicator is marked ‘Not Enough Information’.

There is not enough evidence to score this indicator. No publicly available data was found to establish whether officials regularly produce a completion report with supplier performance appraisals. The Ministry of Defence did not address this point in its written response [1]. As such, this indicator is marked ‘Not Enough Information’.

There is not enough evidence to score this indicator. With regards to industrial cooperation, no publicly available data was found to establish if action is taken for breach of contract. The Ministry of Defence did not address this point in its written response [1]. As such, this indicator is marked ‘Not Enough Information’.

France does not appear to have an official offset policy which makes it difficult to evaluate how often or in what manner it engages in offset contracts. While it is bound by EU Competition Law under the EU Directive on Defence Procurement 2009/81/EC, [1] an exemption under Article 346 allows for offsets under a restrictive interpretation: “any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material”. [2] As mentioned in 70B, all exports are subject to compliance with the “Sapin 2” anti-corruption law. Article 17 of the law requires an internal alert system to collect reports from employees who are aware of conducts or situations contrary to the Code of Conduct, as well as procedures for evaluating the situation of customers, first-tier suppliers and intermediaries, and a system of internal control and evaluation of the measures implemented. Penalties can be very heavy. However, there is no evidence of a formal policy or procedure outlining reporting and delivery obligations for offset contracts specifically.

France does not appear to have an official offset policy which makes it difficult to evaluate how often or in what manner it engages in offset contracts. The French government does not publish information on its offset contracts, as they are part of confidential negotiations between the buying country and – in the case of France who is more often a seller than a buyer – the arms manufacturer (in whose capital the French State can have shares or not). According to an interviewee, a researcher specialised in French arms deals, [1] it is up to the will and legal framework of the buying country to decide whether it wants to publicise or not the financing package and its details.
In the case of the Rafales sold to India, it was the Indian media that publicised the local offset partner, Reliance Defence group. [2] On the other hand, many offset details were given about the submarines contracts with Australia, [3] or about the mine-hunters contract with Belgium or the Netherlands. [4] According to the interviewee, [1] Australia, Belgium or the Netherlands have a culture of transparency on arms deals, and willingly released information about these deals. This may be due to the fact that these states have formalised approaches to offsets in place, whereas the approach in France is dependent on requests from the purchasing country.

France does not appear to have an official offset policy which makes it difficult to evaluate how often or in what manner it engages in offset contracts. According to the interviewee, a researcher specialised in French arms deals, [1] verified completion reports are not part of the process for French procurement offices. Reports on delivery obligations are more often than not kept confidential. No record of any publicly available completion report was found.

France does not appear to have an official offset policy which makes it difficult to evaluate how often or in what manner it engages in offset contracts. Offset contracts are generally confidential, in many cases due to requirements from the purchasing country. No record of breaches of contract being acted upon was found. An interview with an expert [1] could not clarify this point either.

This indicator is marked ‘Not Applicable’ as offsets are prohibited under German and EU law [1,2,3].

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

This indicator is scored ‘Not Applicable’. Offset contracts are prohibited in Greece according to Law 3978/2011 on Public Procurement of Works, Services and Procurement in the Fields of Defence and Security [1, 2].

Offset contract are prohibited in Greece via legislation. As such, this indicator is marked ‘Not Applicable’.

Since the new EU level regulations have come into force, there have been no ongoing or projected offset programmes in the country [1]. As such, this indicator is scored Not Applicable.

India’s Defence Offset Policy primary objective is to leverage the capital acquisitions to develop India’s defence industry. It aims to do this through encouraging development of internationally competitive enterprises, augmenting capacity for R&D of defence services and products, creating synergy between sectors such as civil aerospace. There are formal policies and procedures that outline reporting and delivery obligations for offset contracts, laid out in the DPP-2016. This includes procedures for reporting on completed work, for addressing deficiencies and penalties [1].

In 2018, amendments were made to the Defence Offset Guidelines. These consist of providing additional ways in which foreign Original Equipment Manufacturers (OEMs) can discharge their obligations at higher multipliers Securities and Exchange Board of India (SEBI) regulated funds which can be used for the discharge of offset obligations and opportunities for investment in defence corridors. Previous amendments include the Defence Offset Management Wing (DOMW) may now recommend a change in the offset partner/ offset component on being convinced that the change is necessary; and can give vendors the option of furnishing the details of the Indian Offset Partners (IOPs) a year before claiming the offset credit or at the time of claiming the credit. This makes it easier for vendors to re-phase the implementation schedule and change its IOPs [2]. Indian vendors involved in all categories of defence procurement can be protected against unanticipated Exchange Rate Variation (ERV).

Information on offset projects can be found in Standing Committee on Defence reports and CAG reports/press releases. Some information is made public in the media [1][2][3]. The information is often basic and does not include financial details and delivery schedule [4].

In September 2018, the government issued a press statement providing clarification on Dassault’s choice of its Indian Offset Partner. The opposition party blamed the government for choosing Reliance Defence over the DPSU Hindustan Aeronautics Limited (HAL); a claim the government has vehemently denied stating that the OEM chose its IOP and that the government played no role in this selection [5][6].

CAG had observed from 2007-2011 that there were deficiencies in management of offsets. These included invalid selection of IOPs, zero value addition by the IOP, award of the offset contract in violation of provisions and weak monitoring of offset projects.

Since then, over the past few years there has been strengthening of monitoring mechanisms. The DOMW is entrusted with monitoring the discharge of offset obligations, including audit and review of yearly progress reports received from vendors. The DOMW administers penalties to vendors who have defaulted, assists with offset policy formulation and offset banking guidelines. It is the repository for all offset contracts. The Acquisition Wing submits an annual report to DAC in June each year regarding the details of offset contracts signed during the previous financial year [1][2]. The Controller General of Defence Accounts (CGDA) is additionally responsible for auditing of offset contracts [3].

There is evidence suggesting that there is robust enforcement. In February 2018, the MoD informed the Standing Committee on Defence that out of 42 offset contracts signed, 11 had a final/interim penalty administered to them, totalling $38.19 million. The penalties had been imposed because of defaulting vendors [1][2]. In-built mechanisms put penalties on defaulting contracts as per the offset guidelines.

In the past, Lockheed Martin, Textron and Boeing have all been fined for failing to meet offset obligations [3]. There has been criticism that the MoD stringently enforces penalties without revising mechanisms in place that can facilitate better fulfilment of obligations. The Modi government has made amendments to the DPP that addresses this [4].

Government Regulation No. 76/2014 does not provide a description of a cradle-to-grave procedure, focussing only on pre-implementation stages up to the contractual stage of offset [1]. The procedure for offset reporting and delivery obligations is regulated in Article 37 of Minister of Defence Regulation No. 30/2015 on monitoring and evaluation (M&E) of offset [2]. The procedure is quite straightforward: the provider delivers reports on the implementation of offset to the Directorate General of Defence Potential (POTHAN) and the Defence Facilities Agency (BARANAHAN) on a regular basis. The ad-hoc offset team from the Ministry of Defence monitors and reports the result to the same stakeholders, which then forward the report to the KKIP. According to Article 36 of Minister of Defence Regulation No. 30/2015, the result of the M&E becomes the basis for the decision as to whether offset has been fully discharged and, in the case of failure, what penalties/sanctions should be imposed [2]. One interviewee acknowledges that there are third parties involved in negotiating offsets, namely market representatives from providers, the same party that assists in the procurement process (see Article 41) [2, 3]. The market representative’s role is limited to communication assistance and attendance at meetings. They are not allowed to make decisions on behalf of the principal. The Ministry of Defence considers the market representative to be the responsibility of the principal and has therefore not encouraged the Integrity Pact to be carried out between the provider and the market representative.

The government, in this case the Ministry of Defence and the Defence Industry Policy Committee, which is authorised for offset policy, does not publish a specific list of offset contracts. However, it published data of offset in form of number, procurement case, and offset receiver, in 2018 as part ot annual report to public [1]. Further details on this matter can be requested from the Directorate General of Defence at the Ministry of Defence [2]. Accessible details include the number of programmes, types of activities in general, in accordance with the categories presented in Government Regulation No. 76/2014, the value of contracts, providers and recipients. Offset contracts have never been published. There are a few pieces of information on offset activity scattered across state company websites [3,4], but these have not been not compiled and published in aggregate form.

With regard to offset implementation, one interviewee [1] acknowledged that there are providers who refuse to report the progress of offset activity. In this case, the Ministry of Defence must rely on reports from offset recipients. Monitoring offset compliance includes monitoring of reports completed, material provided, proof of attendance and so on. The frequency of this reporting depends on the contract; it can be conducted per activity or on a regular basis in accordance with a certain schedule.

To date, only two offset contracts have been completed. There is no record of any violations committed in the current offset contract, either by the provider or the recipient [1]. Refusal to submit an offset progress report is not considered a violation of contract, since there is no standardised mechanism for reporting [2]. The format of reporting depends on the negotiations prior to signing of contract. Given that the need to enforce sanctions has not arisen, this indicator is not scored and is marked ‘Not Enough Information’.

As Iran is not known to have offset contracts, there are no formal policies or procedures that outline the reporting and delivery obligations for offset contracts [1, 2, 3].

As Iran is not known to have offset contracts, the government does not make any details about off-set contracts transparent/known [1, 2, 3].

Iran is not known to have offset contracts, therefore there is no knowlewledge of procurement offices conducting reporting and delivery obligations of offset contracts [1, 2, 3].

As there are no known offset contracts in place, breaches of contract are not acted upon [1, 2, 3].

Official government pages and social media accounts contain no information regarding offset agreements, policies of contractual provisions concerning off-set contracting, in the realm of defence. Compliance of existing contracts is rife in Iraq, which brings into question contract oversight and management of offsets. A local contracts lawyer explains further to TI (1) that “Iraq’s watchdog agencies provide convenient window dressing whereas contracting rules are routinely circumvented in absence of consensus on what the law states, in addition to reliance on cost-plus contracts”. As Transparency Int’l 2015 Iraq country file (2) report notes, Iraq is not bound by WTO trading laws and transparency obligations on ‘Offsets’, but it is relevant to mention Iraq’s ongoing pursuit of WTO accession. In 2018 it submitted an updated memorandum on the foreign trade regime (3).

The existence of offset obligations, requirements, standard procedures were described by a military legal advisor as a “black hole” adding that “they occurred under the former regime and are likely to be used till present, but the picture of their use is an opaque one, so as to “ensure confidentiality of classified and sensitive national security information” (1).

The contracting agency, as Iraq’s public government contracts Law states, is the actor that assumes monitoring responsibilities, over accounts and transactions, but the contracting agency is not always identifiable, as a source told TI (1). The lack of transparency, combined with absent monitoring procedures, makes the field of contracting vulnerable to fraud and unsolicited transactions, bid-rigging, fraudulent overbilling. Another reliable source verifies that (2), “there are no restrictions on foreign entities wishing to do business”. As for the signing of either supply or construction contracts, the foreign entity is expected to open an Iraq-bound branch “or incorporate an Iraqi company”. It is unclear whether the same rules apply to offset contracts, and there no information to verify or refute this argument. The evidence raises one’s attention to the opposite; contractual fraud. Corruption deals during Maliki’s time ranged from supply deals for “armour, rockets and ammunition” (3). An important case in point is the Iran deal, in which supplies worth $1.5 bn, was revealed to be rehabilitated Russian third-generation aircraft (3). Similarly, in August 2016, Haider al Abadi ordered an investigation into corruption over defence deals, the verdict of which remains unannounced (4).

No evidence shows there is an efficient procurement monitoring system that has been installed to lower corruption risks in defence offsets. In cases where deals have been proven to be corrupt (1), (2), (3) as the above examples show, no action has been taken, nor has any defence actor been prosecuted for their involvement in bogus defence deals.

There are formal policies and procedures that outline the reporting and delivery obligations for offset contracts. This includes procedures for reporting on completed work, for addressing inadequate work, for sanctioning, and for following the chain of command (1) (2) (3).

The government makes public some details of offset contracts and programmes. The Industrial Cooperation Authority at the Ministry of Economy and Industry is responsible for offset management in Israel and handles industrial cooperation agreements with more than 200 foreign companies and corporations that work in areas such as defence, aviation, energy, electronics, medical equipment or vehicles (1) (2). The Industrial Cooperation Authority (ICA) also initiates meetings between Israeli companies and foreign Industries, connects Israeli factories to foreign Suppliers and ensures that offset obligations are fulfilled. The ICA does not publish detailed information in light of business-related sensitivities regarding such contracts, and in order to protect trade secrets and the interests of the companies involved. However, some details are published in the media and in accordance with the provisions of the FOI Law (3) (4).

Suppliers are required to submit annual reports regarding the fulfillment of their undertakings for industrial cooperation to the ICA (1). The progress report includes the following details: (a) Performance against anticipated industrial cooperation under the supplier’s approved implementation plan; (b) A summary of all the “claims” for industrial cooperation credits via Appendix “C” approved by the supplier’s independent auditor; (c) For each one of the credit claims the supplier is also required to submit a confirmation of the Israeli supplier (with whom the industrial cooperation was performed) signed by an authorized signatory, via Appendix “C1” (2).
Upon receiving the supplier’s report, the ICA produces a report as to te monitoring of implmentation of the foreign supplier. This impacts on the ranking of each foreign supplier which is updated according to the rate of implementation. A Foreign Supplier who does not meet the annual implementation rate in accordance with its Binding Undertaking and its approved Implementation Plan,will be classified in the system as a “Monitored Foreign Supplier” (3). However, there is no evidence that these supplier appraisal reports are independently verified by another external institution.

Following approval of the Foreign Supplier’s Implementation Plan, the ICA will conduct regular monitoring of performance of his obligations.If the contract is not adequately implemented, foreign suppliers become “Monitored.” The first stage is for a warning letter to be sent and a demand for justifying why the implementation rate is not being met and requesting a new Amended Implementation Plan from the supplier (1). Failure to do so could result in black listing where the supplier is prohibited from contracting with an israeli buyer for up to 5 years (2). However, the black list of suppliers is not publicly available. Reports in the media howver do outline enforcement of ICA rules in relation to suppliers. In 2017 for instance, 27 warning letters were sent and blacklisting proceedings were started against 2 companies, including ThyssenKrupp (3).

Offset contracts are generally not allowed in Italy, in accordance with the EU legislation on defence procurement. Nonetheless, while Italy has no formal policies on offsets, the use of such an instrument might be allowed due to the specificities of the sector and should follow the Code of Conduct on offsets issued by the European Defence Agency in 2009 [1]. Offset can be included in Government to Government agreements, therefore, it answer political considerations.

The management and execution of offset agreements is ensured by competent technical directorates (Direzioni tecniche competenti) and programme directorates (Direzioni di programma) [2].

By accessing the available information online, it is not possible to verify the presence of formal policies or procedures that outline the reporting and delivery obligations for offset contracts.

As anticipated, offset contracts are not foreseen by the Italian legislation and occur in the form of intergovernmental agreement. The lack of a specific legislation imposes the technical directorate the duty to formulate connecting elements with the national standard procedures for what concerns specific technical aspects of the product [3]. The connecting elements include references to procedures for reporting on completed work, for addressing inadequate work, or for sanctioning.

Online it is possible to access information on offset contracts even though a list of the contracts is not available and information is difficult to find. Outdated and partial list of offset agreements can be occasionally found [1]. By taking the KC767 Tanker programme as an example, it is possible to gather information on contract amendments [2]. On the website of the Court of Auditors [3] it is possible to find very general information.

There is not enough Information to score this indicator, as there is no available evidence online and in periodic reports to assess the effectiveness of the monitoring system [1] [2].

There is not enough Information to score this indicator. As part of government to government agreements, should an offset contract not be sufficiently completed, it could be revised with a modification of the original agreement [1]. However, information on this is not publicly avaliable.

The monitoring of production by a Japanese subcontractor for defence equipment that Japan procures from a foreign government and/or company is only moderately transparent (see Q71B). Japanese authorities have not made public details of what formal rules for reporting and delivery obligations apply to this form of production. The answer to this question largely builds on an audit report by the Board of Audit, which provides some information on subcontractor work by Japanese companies on the F-35A. In this work, the Japanese companies were bound by two sets of rules, one regulating their relation to ATLA, and one regulating their relation to the main US contracting companies for the F-35A. [1] The “Guidance on Bidding and Contract” provides rules for deliveries to ATLA. Documents found on the homepages of the MOD provide rules for the inspection by ATLA or Regional Defence Bureau officials of deliveries [2] and for writing completion reports with appraisals of the products and the quality of the work done. [3] For the F-35A procurement, the Government of Japan selected a separate Japanese company as a subcontractor for each of three key US F-35A manufacturing companies. Each of the subcontractors signed a contract with ATLA, which provided them with a fund for investments needed before undertaking engineering work on the F-35A. ATLA made an annual report about each subcontractor to the Minister of Defence and an annual lifecycle cost report on the F-35A procurement project. [4] No information on other reports from this project were found on the website of the MOD. [5] The Guidance on Bidding and Contract provides information on how inadequate work is to be handled and outlines sanctions such as reduced pay and penalties. [6] Some work on the F-35A project was inadequate, and ATLA addressed this. Two of the Japanese subcontractors did not complete all their components on time, and delayed quality approval of their component production and delayed orders from US main companies were two reasons given by the Board of Audit for this. ATLA dealt with this issue by examining what might be the causes of the delays and organising annual four party conferences attended by the US authorities, ATLA and the US and Japanese contracting companies to try to find solutions. One measure that functioned as a sanction was that ATLA would let companies begin to make new types of components only after they had mastered production of the ones they were working on. [7] Furthermore, the year after the Board of Audit published its report, the Government of Japan terminated the use of domestic subcontractors in the project and procured completed F-35As directly from the US, which it explained was because the domestic contribution to production was making the planes too expensive. [8] Another example of losing a contract due to inadequate performance is a case reported in 2019. The Government of Japan decided not to demand that a Japanese supplier, Fujitsu, be included as a subcontractor for the procurement of a new radar from Lockheed Martin for its Aegis Ashore missile defence system, because including Fujitsu would be expected to delay the development of the radar by about eight months. [9] The Guidance on Bidding and Contract includes explicit rules for who in ATLA a contracting enterprise should report its production schedule to, as well as whom they should report other matters to. [10] In the F-35A case, ATLA played a key role in ensuring that the chain of command was followed by reporting on the progress of the work to the Air Force Staff Office. [11] It should be noted that the Government of Japan does not use the term offset contract about any of its contracts in the sources cited.

When the Government of Japan concludes a large defence procurement contract with a foreign government and/or company that includes Japanese domestic production, it will often provide basic information in a press release or similar document. The Japanese Government does not use the term offset contracts about any of the contracts involving such domestic production. The domestic production may be described in abstract terms, giving no details that identify which Japanese enterprise is participating. On July 6, 2012, the Prime Minister said in the Diet that Japan had signed a Letter of Offer and Acceptance for procuring F-35A fighter planes from the US, but that the US had requested the details of the agreement should not be made public. [1] In an announcement on March 1, 2013, the Chief Cabinet Secretary stated that Japanese companies would contribute to manufacturing the fuselage and some components of the F-35A, which Japan would procure from a US-led consortium. [2] Three Japanese companies were selected as subcontractors for three US companies that produced key parts of the aircraft. A search of the website of the MOD revealed no announcement of a contract award to the three Japanese enterprises. [3] However, for all three enterprises, contracts covering a part of the work that they were to do, such as component delivery or servicing, are found in the list of contracts, arranged by year, on ATLA’s homepages. The publicised information gives the content of the delivery, the number of deliveries, the contact details of the official at ATLA in charge of the listed contract, the date on which the contract became effective, the name and corporate number of the contracting Japanese enterprise, the contract sum and (as these contracts were all discretionary) the reason that the contract was not awarded following open competition bidding. [4] Similarly, the white book Defence of Japan 2017 has information that a Japanese enterprise is a subcontractor for the SM-3 Block 2A missile, which Japan is purchasing from the US under FMS. [5] Contract information on this procurement was not found on the website of the MOD, but information on partial contracts with Mitsubishi Heavy Industry, the Japanese subcontractor for the procurement, is available on the homepages of ATLA. [4] The same categories of information as for the F-35A subcontractors are provided there. Examples in an annual report of export licenses for delivering components for defence equipment that Japan will procure are also given in terms that do not identify the Japanese enterprise. [6]

In the general case, an official from ATLA or a Regional Defence Bureau is to make a completion inspection when a defence product is delivered and submit a completion report (see Q71A). In the case of the F-35A, ATLA submitted annual progress reports for each of the three involved Japanese subcontractors to the Air Self-Defence Force Chief of Staff and submitted annual F-35A procurement lifecycle cost reports to the Minister of Defence. [1] No information was found on completion reports for F-35A components on the websites of the MOD or ATLA. [2] [3] However, because the F-35A procurement project has been given high priority by ATLA, and ATLA has regularly made reports on the project, as noted, there are good grounds to believe that completion reports have been made as well. [4] There are also good grounds to believe that these completion reports have not been made public, due to the confidential nature of the production of new fighter jet components. External verification of the annual F-35A component subcontractor progress reports and the annual F-35A procurement project lifecycle cost reports is not mentioned in the report by the Board of Audit where these two reports are described. [5] Neither were any such subcontractor or lifecycle cost reports mentioned on the homepages of the Ministry of Defence, [6] Board of Audit [7] or House of Representatives [8]. (Except that the one Board of Audit report in which these two reports are mentioned is found on the homepages of the Board of Audit.) Confirmation of external verification has not been found however, confirmation may well take place without being made public. It should be noted that the Government of Japan does not use the term offset contract about any of its contracts in the sources cited.

In the case of the production of F-35A components, some of the work done by Japanese subcontractors was insufficient. Some of their components were not delivered in time to be used when the F-35A aircraft were assembled. In one case, this delay may have been caused by a delayed order by a prime contractor. The Japanese subcontractors had not acquired quality approval from the prime contractors for the F-35 in the US of all the components they were to make in time for delivery. One action that ATLA took was to organize four party conferences for the US authorities, ATLA and the US and Japanese contracting enterprises to try to find solutions to such problems (see Q71A). [1] Another action which the authorities can take is not to renew contracts. According to the Asahi newspaper, the Government of Japan decided to terminate subcontractor production in Japan and purchase completed aircraft directly from the US in 2018. [2] Enterprises may also lose contracts if they are not believed to be capable of meeting high standards. According to press reports, the Government of Japan decided not to ask for the inclusion of the Japanese enterprise Fujitsu as a subcontractor in the development of a new radar for the Aegis Ashore missile defence system, as it expected that this would delay the completion of the procurement process. [3] It should be noted that the Government of Japan does not use the term offset contract about any of its contracts in the sources cited.

The only legislation related to defence procurement and contracting does not include any policies about the reporting and delivery obligations for offset contracts. Military Supplies Law No. 3 of the year 1995, and Military Works Law No. 4 of the year 1995, are both the main sources of legislation in relation to armed forces’ contracting [1, 2]. Military Works Law No. 4 of the year 1995, is the only legislation that includes formal policies and procedures about how to monitor, assess and report upon a supplier’s service and/or delivery obligations, and these only include sanctioning suppliers from bidding for a period of two years [2]. There is no recognition of offset contracts and therefore, there is an absence of policies and procedures related to it.

The government does not make details about off-set contracts transparent. There is a total lack of transparency in relation to defence contracting (see Q70).

Due to the total lack of transparency in offset contracting (Q70), it is impossible to assess reporting on these contracts as no such information is made publicly available [1,2].

There are no existing policies and procedures to monitor offset contracts. [1] However, the government has for instance introduced some offsets to protect the construction industry. [2]

The public may not demand any transparency regarding offset contracts from the Ministry of Defence, because the government already prohibits offset contracts in most contexts, as outlined in 70A. [1] Although the government has introduced some offsets to protect the construction industry, these were recent changes in law, and therefore, there is limited information on the nature of these contracts. Besides, there is no evidence to show that the military have at any time flaunted the legislation against the use of offset contracting.

There is no requirement for procurement officers to monitor and report on delivery obligations by contractors in relation to offset contracts. The role for offset contract monitoring does not exist because offset contracting is largely not provided for under Kenya’s procurement laws. Further, Kenya upholds the World Trade Organisation (WTO) laws for treaties and government procurement, which prohibits offset contracting in most contexts. [1]

There exists no evidence of enforcement measures related to offset contracting in the Ministry of Defence. No enforcement measures are necessary because offset contracts are largely not provided for in the procurement laws of Kenya. Offsets had until recently been prohibited under the Kenyan legislation. [1] Given the lack of evidence on this issue, this indicator is marked ‘Not Enough Information’.

Offset contracts are not regulated in Kosovo’s current legal framework. It is important to emphasise that there is no evidence that offset contracts occur in practice [1].

Tbe ‘Guidelines for Kuwait Offset Program’ [1] includes an ‘Offset Milestone Schedule’, which includes six stages from ‘Concept Paper stage’ to ‘Offset Fulfilment certificate’, and the responsibilities of both the Kuwaiti authorities and the supplier. As mentioned above, these guidelines were written in 2007, when offsets were managed by the now defunct ‘National Offset Company’ (NOC). KDIPA still references these guidelines however, there has been no change to the text reflecting the change in authority or new laws.

The Guidelines include additional details on reporting, stating that quarterly progress reports must be submitted by suppliers as well as a ‘Offset Progress Report’ at the end of the first financial year of the contract [1, pg 19]. Financial statements relating to the contract must be certified by one of the auditing firms approved by the NOC (now KDIPA).

No specific details are made available regarding sanctions for inadequate work however, suppliers must provide a bank guarantee to the value of 6% of the contract. If the supplier refuses to implement the offset obligation, the bank guarantee serves as a penalty.

The KDIPA website does not include details about specific offset contracts [1]. The 2018 Annual Report makes mention of an existing 20 projects, and 30 new proposed projects but other than these numbers no other details are published. The report makes specific mention of three offset military procurement contracts [2].

According to interviews, the government does not make any details of the offset agreements available to the public and they only give the SAB and Parliament basic details about them that mostly just describes the total amount of money invested and the identity of the contractor [3, 4, 5].

No details regarding completion reports could be found online.

The security agencies refuse to give these reports, assuming they actually exist, to external auditors and lawmakers, so it is difficult to know if they are actively monitoring all their agreements, the aforementioned sources said (1, 2 and 3). The media also has no reports on the matter.

There is not enough information to score this indicator. According to the 2018 Annual Report, five obligors failed to make a decision on fulfilling their obligations and as such were penalised. It is not clear if these were for defence contracts [1].

As far as auditors and analysts are concerned, they could not name a single dispute between the security agencies that resulted in the Government taking formal steps against a certain defence or security contractor [2,3,4,5,6].

This indicator is marked Not Applicable as there is no evidence that offset contracts are concluded in the defence sector of Latvia. Offset contracts are prohibited by the law based on EU legislation. [1] [2]

There are no formal policies and procedures that outline the reporting and delivery obligations for offset contracts (1). However, Article 29 of Decree no. 11574 (1968) states the responsible administration for the procurement has the right to ask for products and goods to be produced domestically (2). The Article can reflect a condition for a potential offset policy (2).

The government does not publicize the list of contracts (including details of the supplying companies) or copies of the contracts themselves (1).

There are no published reports conducted by procurement offices on delivery obligations (1). As previously stated, the LAF does not publish any procurement related report or contract (1). Furthermore, the responsible administration for the procured contract monitors the implementation, in theory (2).

No evidence for actual offset policies or contracts, additionally no information on their enforcement was found (1).

National offsets are banned in Lithuania, as such this indicator is scored Not Applicable. Back in 2012, the European Commission informed Lithuania that national offset agreements violated European Union Law [1]. As the European Commission has stated, such contracts “go against the basic principles of the Treaty, because they discriminate against economic operators, goods and services from other Member States and impede the free movement of goods and services. Since they violate basic rules and principles of primary EU law, the Directive cannot allow, tolerate or regulate them”. The Assessor found no evidence that offset agreements had taken or would take place.

The Policy and Guidelines on Industrial Collaboration Programme (ICP) in Government Procurement document outlines the national policy on offset contracts and provides a guideline on matters including outlining chain of command, the process of offset tenders, reporting, and addressing incomplete work. [1] Furthermore, the Malaysian Offset Programme Management Framework provided in the policy guides the development and implementation of offset contracts. [2] In addition, offset contracts are subject to the same laws which are applied to all government procurements. The Financial Procedure Act 1957 outlines the delegation of authorities in the management of public finances as well as financial and accounting procedures including procedures for collection, custody and payment of public monies and procedures for procurement, custody and disposal of public properties. [3] The Contracts Act 1950 specifically regulates government procurement and provides provisions for contract-making and contract termination. [4] Section 5 of the Delegations of Power Act 1956 outlines the delegation of power from the central government to Ministers. [5] On top of the aforementioned laws, government procurement must also abide by of Treasury Instructions and Treasury Circulars. Treasury Instruction 192 further outlines authority in matters of tenders consideration and approval. [6]

The Malaysian Offset Programme Management Framework provided in the Policy and Guidelines on Industrial Collaboration Programme (ICP) in Government Procurement document, guides the development and implementation of offset contracts. [1] [2] Previously, some offset contracts may have been awarded through direct negotiations, however, the new government plans to revamp the open tender system as an effort to eradicate malpractice [2]. However, according toa senior MINDEF official, due to the sensitive nature of military strategic offset contracts, they are not made public. [3]

Under the Malaysian Offset Programme Management Framework as outlined in the Policy and Guidelines on Industrial Collaboration Programme (ICP) in Government Procurement document, the implementation of the agreed projects in the offset contract will be monitored by a monitoring body chaired by the Implementation Agency.[1] [2] Subsequently, a Post Implementation Audit will be carried out upon the completion of the offset contract. A periodic progress report must be submitted to the ICP Monitering Unit (IMU) and the Technology Depository Agency (TDA), an agency under the Ministry of Finance, as stipulated in the contract agreement. The newly established Governance, Procurement and Finance Investigating Committee (GPFIC) also serves to oversee government procurement and the implementation of offset contracts. However, based on several newspapers reports of corruption cases in the Ministry, it can be deduced that the monitoring of contracts is generally weak. [3] [4] [5] [6] A senior MINDEF official clarfies that due to the nation’s strategic concerns, offset contracts are executed through direct negotions and are not made public. [7]

There is not enough information publicly available to determine a score for this indicator. However, the revelation of numerous Ministry of Defence (MINDEF) suspicious land swap deals reflects that the enforcement of penalties for breaches of contract is weak. [1] [2] [3] An ex-MINDEF official revealed that while there are many occasions where the contractor is reprimanded by MINDEF for non performance and lack of commitment, the penalty clause is seldom invoked and is only used as a last resort. [4]

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 evidence that Mali has any polices or procedures specifically for the use of offset agreements.¹ ²

In Mexico, no commercial compensation offset agreements are made (domestically) [1] and legally there are no restrictions or policies that delineate their implementation. [2] [3] [4]

In this regard, one of its strategic goals is to establish and implement offset agreements [5] in the Strategic Programme of the Aerospace Industry for 2012 and 2020 of the Ministry of Economy and the Mexican Federation of the Space Industry. However, no additional information on progress in this matter was found. [6]

In Mexico, no commercial compensation offset agreements are made (domestically) [1] and legally there are no restrictions or policies that delineate their implementation. [2] [3] [4]

There are no formal policies or procedures that outline the reporting and delivery obligations for offset contracts. [1][2]

The government claims that there are no offset contracts. [1][2] Annual reports of the Ministry [3][4][5][6] as well as reports on oversight adopted by the Parliamentary Committee [7][8][9][10] do not provide any information about offset contracts. The MoD didn’t provide any information when FOI requests was made.

No evidence was found that formal policies or procedures outlining the reporting and delivery obligations for offset contracts exist (1)(2)(3)(4)(5)(6). Neither the National Audit Office nor the defence parliamentary commission nor the Ministry of Finance mentioned their existence in theory or in practice.

This lack of evidence raises concerns about the lack of transparency, which in turns increases risks of corruption.

No evidence was found that the government transparently discloses in full details about off-set contracts, be it through the National Audit Office, the defence parliamentary commission or the Ministry of Finance (1)(2)(3)(4)(5)(6).

There is no evidence that the government is required by law to do so (7)(8).

No evidence shows that procurement offices are conducting reporting and delivery obligations at all.

The government is entirely excluded from the military’s defence contracts. Article 20(b) of the 2008 Constitution grants the military the power to administer its affairs independently [1]. Myanmar’s military mostly makes its defence purchases in secret and rarely makes them public. As a consequence, Myanmar’s defence market lacks transparency and we are not able to access enough information about offset contracts. As such, this indicator cannot be scored and is marked ‘Not Enough Information’.

As there are no policies, procedures, or pieces of legislation in government, transparency is not required or possible.

As there are no policies, procedures, or pieces of legislation regarding defence offset contracts, there is no information regarding the monitoring of these contracts.

As there are no policies, procedures, or pieces of legislation in government, enforcement is not possible.

The leading policy document on industrial participation (offset contracts) does not outline reporting or delivery obligations for offset contracts [1]. However, such policies do exist under the general terms and conditions for procurement contracts. Article 9 of the General Government Terms and Conditions for Public Service Contracts states that progress reports should be submitted as often as the contracting authority deems fit [2]. The database for Industrial Participation (IP) shows that each contract has an IP advisor who remains the point of contact for the duration of the contract and supervises the execution of the contract [3]. Additionally, the level of financial detail shown in the Biennial Report on Industrial Participation indicates that offsets are monitored for delivery of obligations [4]. The procedures outlined for the successful functioning of the IP programme are non-explicit and could not be verified.

The Commissariat for Military Production maintains an industrial participation database where the public can search for companies that are required to place offset orders with Dutch manufacturers [1]. The information provided for each entry includes the company name, company details and the coordinating advisor from the Dutch government [2]. However, while there is a reference number for the agreement, the agreement itself is not visible and thus details of the offset investments and the supplying companies are unknown.

A report on the progress and outcomes of industrial participation policy is submitted to Parliament once every two years. This report includes details on the results of agreements, however, the results are in aggregated form and are purely financial in nature [1]. The Industrial Participation programme is managed by the Ministry of Economic Affairs and Climate with input from the Ministry of Defence, both of which are independently audited every year by the Central Government Audit Service [2]. Monitoring of offset contract executions is included in this audit [1].

There is not enough information to score this indicator.

Article 21 of the General Government Terms and Conditions for Public Service Contracts states that if a party fails to discharge their obligations under the contract, the other party may give notice of default [1]. In the event of default, liability is set between 150,000 euros and 5 million euros, depending on the value of the contract [1].

Offset contracts are explicitly prohibited via legislation. As such, this indicator is marked “Not Applicable” [1].

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 conditions are considered particularly sensitive and receive an additional layer of protection from scrutiny because of their politically sensitive nature (1). Further, off-set agreements like main defence procurement agreements are exempted from competitive bidding unless presidential approval has been expressly obtained under the exception contained in Section15(2) and 16(1) PPA 2007 (2).

The government does not generally make any details about off-set agreements public. They are considered particularly sensitive and as a result, are shielded from normal scrutiny (1). Procurement offices rarely report on delivery obligations at all. They are considered highly secretive. There are lapses in the monitoring processes as evidenced in the NIMSA case; a down payment was made which did not raise any red flags (2).

Enforcement is difficult to assess, as they are considered highly sensitive (1). Although investigations are taking place concerning the high-profile generals accused of fraud, there are other examples of politicians who have been identified but who have not faced any charges (2). The recent case of Amaechi is illustrative in this regard as there have been no formal charges arising out of the allegation. There is an investigation underway, but it is in the early stages (3).

So far, there have been no offset contracts within defence procurement. [1]
Article 31-i of the Law for Production and Trade of Arms and Military Equipment stipulates compulsory procedures for the preparation of offset programs by the Ministry of Defence for the implementation and realisation of offset liabilities. The setting of priorities and goals, type of arrangement (direct or indirect), value, and list of needs, offset period, coefficients and transactions etc. are legal requirements for the programs. This must be done in cooperation with the Ministries of Economy and Finance and, eventually, approved by the government [2].
In addition, the Special Committee reviews requests for import-export, transit, broker services and offsets for the armed forces and delivers a yearly report to the Ministry of Economy and the Government of the North Macedonia (Article 31-a) [2]. The Committee bases its work on the enactment of its own Rules and procedures which are not publicly available. The Law does not specify concrete procedures for reporting nor for the very content of the report. Addressing completed or inadequate work, sanctions etc. are not mentioned. The Law only stipulates the delivery of the report in the first quarter of the year and its submission to the government [3]

There is not enough information to provide a score for this indicator. So far, no offset contracts for defence procurement have been concluded [1]. In 2012, the Ministry of Defence organised a public conference named “Application of Offset Arrangements in the North Macedonia” which debated the structure, application and benefits of such arrangements [2]. However, no public evidence around the operationalisation of such contracts exist.

There is not enough information to provide a score for this indicator. A Special Committee was tasked to review requests for import-export, transit, broker services and offsets and to produce a yearly report. However, no offset contracts for defence procurement have been concluded. Therefore, no such report can be found [1].

There is not enough information to provide a score for this indicator. So far, no offset contracts for defence procurement have been concluded [1].

Formal policies and procedures on reporting and delivering obligations for offset contracts are specified in the Regulations on Industrial Co-operation Related to Defence Acquisitions from Abroad [1]. This includes procedures for reporting on completed work, addressing inadequate work, sanctioning and following the chain of command. By 31 March each year, the supplier must submit a report comprising a request for activities carried out the previous calendar to be credited. The report must be submitted in accordance with the format prescribed by the Ministry of Defence. The reports are evaluated by the Norwegian Defence Material Agency, which oversees the status of the industrial cooperation agreements [2]. The supplier is to receive a feedback no later than 30 September the same year. Industrial cooperation agreements are organised according to a milestone system. If the fulfilment period is from 3-5 years, at least 1 milestone is mandatory. For 5-8 year fulfilment periods, at least 2 milestones are mandatory, and for 8-10 year fulfilment periods, at least 3. For fulfilment periods beyond 10 years, a minimum of four milestones are mandatory [1].

The Regulations on Industrial Co-operation Related to Defence Acquisition from Abroad stipulate that Industrial Cooperation Agreements are exempt from public disclosure [1]. However, the size of the commitment, its outstanding value and supplier’s name can be published. This is published online by the Norwegian Defence Material Agency as part of a regularly-updated list [2].

The Norwegian Defence Material Agency submits annual reports on current industrial cooperation agreements, including information on completing the project, to the Ministry of Defence. In addition, the Ministry of Defence receives a copy of an annual status letter sent to the foreign company (obligor) [1]. However, these reports from the NDMA are not externally audited by another body [2].

The consequences of failing to meet the commitment are specified in Article 3.7 “Penalty Clause” of the Regulations on Industrial Co-operation Related to Defence Acquisitions from Abroad [1]. Suppliers that fail to meet the milestones are obliged to pay compensation as stated in the agreement. This compensation shall be no less than 10% of the outstanding value, as according to the milestone schedule. The same applies if the supplier fails to meet the commitment by the end of the fulfilment period, including strategic content requirements. The amount of the final compensation is to be stated in the Industrial Co-operation Agreement, but shall constitute no less than 10% of the outstanding value. Consequences of breach of commitment are specified in Article 6.1 “Consequences of Supplier’s Breach of Contract”. Breach of commitment may lead to exclusion from competition for future deliveries to the Norwegian Armed Forces, until the commitment has been fulfilled. If the supplier/obligor fails to meet the commitments, the Norwegian Defence Material Agency usually starts negotiations and assists in finding partners and relevant projects in Norway. According to an employee from the Norwegian Defence Material Agency, until now it has always been possible to find workable solutions and it has not been necessary to apply sanctions [2]. To conclude, although there is a policy of sanctions, it is not usually enforced and other solutions are preferable.

There are no laws of policies that deal with the reporting process and obligations in the offset contracts (1), (2). There are no formal policies or procedures that outline the reporting and delivery obligations for offset contracts. The Oman Law blog expresses concern over the uncertainties around offset contracts in general and states that in the case of Oman, “it is therefore vital for the Authority to raise awareness of the PFD program and to clarify the requirements and procedures for the parties to eliminate uncertainties that may adversely affect the implementation of the projects it has approved and to not discourage potential investors” (3). No legislation has been passed since the initial RD in 2014, although awareness-raising around PFD economic development program is taking place (4). However, in terms of concrete procedures and policies that outline reporting and delivery obligations for offset contracts no information was found (5), (6), (7). The PFD process is outlined on the Authority website, but no formal policies or procedures accounting for potential breakdowns of obligations is featured (8).

There is a lack of transparency within the government managed offset contracts. There is very little data available on them. These contracts, according to our source, are potential for corruption as they are mostly single-sourced and contracted based on personal links rather than competition (1), (2). Few details about off-set contracts are made public. Only one media report, in the Oman Daily Observer from November 2016, detailing the first offset contracts following RD 9/2014 and ratification in 2015 including the signing of 6 defence and security offset contracts was found (3). Details in the article include the companies name and product, without references to the contract between the Oman Authority for Partnership and Development (PFD) overseeing offset contracts with foreign companies (3). No other media reports detailing off-set contracts between businesses and the government were found, nor were any articles (4), (5), (6). Government ministries do not have any details of defence-related offset contracts on their websites (7), (8). The Oman Authority of Partnership for Development has a comprehensive website; however, no lists of contracts, investments and supplying companies were found (9). The article is the only reference to signed offset contracts in the public domain according to desk-based research, and it lacks details about government monitoring or oversight of offset contracts. Moreover, there is no government transparency around contracts, suppliers or investments.

There is a form of reporting procedures that goes towards completion reports. However, these policies are not always followed, and a completion report has become a bureaucratic (superficial) process rather than a step to ensure credibility and an anti-corruption measure (1), (2).

When a contract is violated, especially in the delivery process, sanctions are highly probable against the suppliers (1), (2). There are rare cases when strategic (i.e. ammunition) contracts are violated, but in logistics, it may happen; however, actions are taken and the quality of services corrected (1), (2).

According to the law (1), some formal policies and procedures outline the delivery obligations for offset contracts (based on the amount of money), the less the amount, the higher probability of having an offset contract. A senior MoF officer stated that the official systems lack the reporting part of the delivery; it indicates the penal code is inadequate concerning the guidelines of the delivery (2).

The MoF and security agencies do not make any details about off-set contracts transparent (1). Post-contracting remains ambiguous and no reports to either the public or other oversight agencies, such as the Parliament, are made. There was no evidence of statements concerning offset contracts when the researcher was researching MoF reports (2).

Officials rarely produce a complete report upon delivery, as they are for internal bureaucratic use (1). Reports that are made are superficial and are not serious. In many cases, the quality of goods do not meet the required standards, but usually, officials ignore the shortcomings of the goods (2).

As there are no regulations concerning offset contracts, there is no enforcment of any law (1), (2).

Pursuant to Section 3 of Executive Order No. 12o of 1993, the Department of Trade and Industry though the Philippine International Trading Corporation (PITC) is the government office responsible for the implementation and administration of offset contracts [1]. The Implementing Rules and Regulations has outlined the procedures but they are not extensive. This includes monitoring and crediting procedures, requiring suppliers to submit quarterly and annual reports on the progress of their offset performance, and conducting midyear and yearly performance reviews [2].

Some details are provided, including on the PITC bid announcement page, although not to an adequate level and not on aspects such as planned offset contracts and potential policy changes [1, 2, 3]. Assessments of PITC including COA reports are also made available [4].

No completion reports as specified were identified since a MOU was signed between the DND and PITC in 2017 [1, 2, 3, 4, 5].

Stated contractual obligations are specified but contract breaches are not directly addressed in a public manner; this being said, mechanisms such as the COA do serve indirectly and in a less time-sensitive manner as a means for highlighting issues that may arise [1, 2, 3, 4]. Given the lack of public information on this issue, this indicator is not scored and is marked ‘Not Enough Information’.

Offset contracts are monitored by the state, and the detailed rules for monitoring the performance of offset obligations are based on the “2014 Offset Act” (Articles 16-19) [1]. The act explicitly defines sanctions for non-performance of obligations. Decision No. 20/MON on the Supervision of the Implementation of Offset Agreements details how the performance of offset obligations is controlled [2, 3].
To accept the fulfilment of the offset commitment, an onsite audit needs to be performed. It is organised by the MoND Offset Bureau and carried out by the offset beneficiary company. Members of the audit team are obliged to sign a declaration affirming there is no conflict of interests, which is verified by the Central Anti-Corruption Bureau. Both the foreign supplier and the offset beneficiary are entitled to make complaints to the audit report. If the report is positive and accepted by the interagency Offset Committee, the defence minister decides on acceptance of the offset obligation.

Generally, the contracts are not considered to be secret, except for data that threatens the fundamental interests of national security, including classified or protected information as a trade secret (Article 4 of the “Offset Act”) [1, 2]. The government publishes some information on implemented offset contracts. MoD publishes on its website updated register of offset contracts where Treasury is represented by the Minister of National Defence. It includes basic information on contracts’ date, value, foreign seller and Polish recipient companies [3]. The government web service contains also a list of offset contracts where Treasury is (or was) represented by the economy minister. The list contains no date of its elaboration (the PDF document dates from 2018) and it is not clear whether it is up-to-date. [4] It is possible to access more detailed data through public information queries and use them in articles. [5]. General information on the scope of offset agreements are available through government statements and press releases. [6, 7].

Since the entry in force of the “Offset Act” [1], new contracts are monitored by the MoND, while earlier contracts are monitored by the Ministry of Innovation and Technology [2]. The Offset Act requires suppliers, not government officials, to report annually on the implementation of the contract (Article 16). Officials may ask for additional clarification; however, they are not obliged to verify annual suppliers reports. The MoND can audit correctness of the contract implementation (article 17). From Article 19, it is clear that the performance audit is obligatory before formal confirmation of the accuracy of implementation of the contract or part of the contract. The findings of final reports were presented in the past in the media, for example, information about the performance of the offset agreement for the purchase of F-16 aircraft [3]. The offset performance is also occasionally evaluated by an external body, the Supreme Audit Office [4].

There are no data or information on offset contract breaches for the last 4 years, consequently the enforcement can not be ranked. The audit and media information on contract breaches relates to the period ranked previously [1, 2]

There is no existing due dilligence requirement, as offset contracts are no longer lawful [1]. As such, this indicator is marked ‘Not Applicable’.

Offset contracts are explicitly prohibited via legislation [1]. As such, this indicator is marked ‘Not Applicable’.

Qatar has no requirements or formal policies to manage offset contracts, including reporting, monitoring, and delivery obligations. [1,2,3,4] Offset contracts are spread out in Qatar, especially within the armed forces, as many of its purchasing budgets come from the Emir office and not the general budget.

Offset contracts are not available for the public. [1,2,3] However, in some cases, they are published if they include large sums and strategic deals within countries such as the USA, France, and Russia.

The Government’s monitoring of offset contracts is minimal. Officials within the armed forces or the MoD have no authority to monitor or report on these contracts. These contracts are granted by the Emir office, and therefore, there is no authority to monitor them. [1,2,3] The only practice that is allowed is to report on deliverables.

There is a total lack of transparency in offset contracting, as these contracts are mostly granted by the Emir office through the officer of the Commander in Chief. It is impossible to assess how breaches of contracts are handled within the defence sector, as no such information is publicly available. [1,2,3]

There are no formal policies specifically for offset contracts that outline how to report or monitor the delivery of services. The 2016 amendment does not stipulate any special procedures [1]. Therefore, the rules for all state procurement contracts apply there. Accordingly, Article 101 of Federal Law No. 44 states that the ordering party shall carry out an inspection upon the supplier’s delivery of service obligations, but does not define any specific procedures for doing so [2].

Since the relevant amendment was made in 2016, there has only been one special investment contract (SIC) – in November 2017 [1]. The Moscow municipal government, the ordering party of the contract, has made the following details of the contract public: the number of bidders, the name of the final supplying company, the contract amount, the contract price changes, the investment amount and the length of the contract. The scope of the contract is presented in a general, aggregated form [1].

Since late 2017, procurement officials of the Moscow government, which was the ordering party for the first special investment contract (SIC) in Russia, has not provided any reports on delivery obligations [1]. The only update on that SIC was published by journalists [2].

Judging by the first and only special investment contract (SIC) in Russia, the procurement officials do not act upon breaches of contract. In August 2018, there was a journalist report about the SIC contractor failing to complete factory construction on time [1]. There is no information available indicating whether the procurement officials took any action.

According to our sources, there are no policies and regulations with regards to offset contracts. Most offset contracts are managed through the crown prince’s office (1), (2).

As with defence and security deals in general, the Saudi government does not release details to the public surrounding its offset contracts. According to our sources, the details are not even available for many senior commanders until the final few days. Offset contracts are often vague and confidential (1), (2).

The broad details of these contracts are usually covered by international media outlets, or in the government literature of the exporting country, for example, in the published minutes of the UK parliamentary foreign affairs committee meetings. There are also some details published on the website of the British Offset Office, a joint initiative between the UK government and BAE Systems, regarding the latter’s projects in Saudi Arabia (updated only through 2012) (3). There is little to no transparency, however, from the Saudi government side regarding the details of these contracts. The website of the Saudi Economic Offset Committee is currently offline and “under construction”.

Procurement offices are not engaged in monitoring or reporting on delivery obligations in offset contracts. There is anecdotal evidence of Saudi government officials following up on offset contract performance and obligations. According to our sources, there is no known mechanism within the MoD to monitor and report on offset contracts. These contracts are managed through the crown prince’s office which is not under the authority of the MoD (1), (2).

Notably, the UK Ministry of Defence’s official offset liaison office claimed to have completed the required offset projects according to the provisions of the Al-Yamamah arms deal signed in the mid-1980s. However, after unnamed Saudi officials reportedly protested against this, the UK’s offset office claimed to have come to “a gentleman’s agreement” with Saudi Arabia and that “the program will continue to run and run” (3), (4).

However, in other instances, there appears to be little follow-up from the Saudi government as regards to performance on offset contracts. To demonstrate, in 2006 US defence company Raytheon was to set up a shrimp farm in Saudi Arabia as part of an offset contract. The farm ultimately had to be shut down due to difficulties surrounding proper maintenance of facilities due to the high temperatures in the country. According to the Economist, when the Saudi offset authority was asked about the fate of the shrimp farm, it said it kept “minimum information” on projects after their founding and suggested contacting Raytheon. Raytheon then declined to comment and directed inquiries back to Saudi Arabia (5).

There are no further or more recent references in the public domain to illustrate either the existence or lack of monitoring of offset delivery obligations from procurement offices or the Saudi government more widely.

Sources report that offset contracts are where corruption is most likely to occur as there is no oversight, no reporting, and there are no assessment mechanisms. Offset contracts are usually arranged through personal ties and relations with companies and their CEOs (or respective governments). Therefore, any breach or violations of the contract is solved informally and not acted upon (1), (2).
Research shows that since establishing its Economic Offset Programme in the 1980s, the success rate for Saudi offset programs is much lower than in many other procuring nations, despite the country ranking as either the first or second-largest importer of arms depending on the period under review. There have been major shortcomings in delivery obligations contractors under offset programs, for example in the employment of Saudi nationals (3). Although there are provisions to penalize contractors for non-fulfilment of offset obligations (4), these are rarely imposed. Academics have suggested that this is likely because offset programs involve corrupt practices, defence contractors can push back against Saudi demands for penalty payments – for instance when offset target deadlines for program completion are missed (5). According to some estimates, there are trillions of dollars in outstanding offset obligations within the Gulf Cooperation Council states (6), with many analysts blaming this on an incoherent offset strategy. Although Saudi Arabia has at times required offset conditions, its predominant objective has always been security and capability absorption in the short-term over long-term development, and therefore it often waivers these requirements for US contracts (7).

Furthermore, breaches or non-fulfilment of contracts often stem from a lack of institutional capacity from the Saudi side, which problematizes the concept of enforcing punitive measures on the exporting country. A notable example is when Riyadh agreed to purchase 72 Eurofighter Typhoon aircraft from the UK in 2007, with a proposed 50 manufactured locally. Due to the lack of qualified personnel in Saudi Arabia, the UK ultimately fulfilled Saudi Arabia’s commitment to building the 50 jets (7).

The government does not officially recognise the existence of offset contracts [1, 2, 3].

The government does not officially recognise the existence of offset contracts [1, 2, 3]. There is currently one contract (with Airbus Group) which resembles an offset arrangement, but it is not publicly available [4, 5, 6].

The government does not officially recognise the existence of offset contracts [1, 2, 3].

This indicator has been marked Not Applicable, as offset contracts are prohibited.

There are formal policies and procedures outlining reporting and delivery obligations for offset contract – these are found in the 2013 revised National Industrial Participation (NIPP) guideline was released detailing the National Industrial Participation Programme policy [1].

Specifically: “Companies with a NIP[P] obligation are required to sign an obligation agreement with the DTI within a month of signing the purchase agreement with the procuring entity. The obligation agreement governs the relationship between the DTI and supplier. It defines the NIP[P] obligation value/s, requirements to fulfil the NIP[P] obligation, performance milestones, performance monitoring processes and the NIP[P] credit allocation criteria” [2].

Of note, however, is that there does not appear to be any specific legislation providing overseeing or enforcement for NIPP compliance/non-compliance. The Department of Trade and Industry oversees NIPP compliance monitoring – or at least, performance monitoring, but has not made available practical information about the specifics of how that monitoring takes place [3]. Within the Department of Trade and Industry, the Industrial Participation Secretariat and the Industrial Participation Control Committee appear to be tasked with overseeing NIPP contracts [4].

Contracts are actively listed on the Armaments Corporation of South Africa (Armscor) Tender Bulletin, with National Industrial Participation Programme (NIPP), and Defence Industrial Participation Programme (DIPP) contracts made public either via this portal or through the Armscor Procurement Secretariat in the case of classified tender documents [1]. Armscor also publishes lists of tender bidding announcements, running tenders, and contract awards [2]. Armscor has made some specific information about DIPP contract offsets available to the public [3].

National Industrial Participation Programme (NIPP) guidelines clearly state performance reviews and constant updates are required as part of the programme. “The parties must hold annual review meetings, commencing from the effective date of the NIPP obligation agreement. The purpose of a NIPP review meeting is to assess the obligor’s performance against milestone targets as set out in the obligation agreement. This review also assesses the performance of all projects in relation to the achievement of the NIPP objectives mentioned in section 2” [1].

It is unclear from the National Industrial Participation Programme guidelines policy document whether action is taken in the event of a breach of contract [1]. Given the lack of information on enforcement, this indicator is marked ‘Not Enough Information’.

South Korea has formal procedures that outline the reporting and delivery obligations for offset contracts. Offset contracts are made under the terms of the Defence Acquisition Programme Act, Enforcement Decree of the Defence Acquisition Programme Act and Defence Acquisition Programme Regulations. [1] [2] [3] The Defence Acquisition Programme Administration (DAPA)’s Offset Trade Guidelines explain the offset trade process in detail. The Guidelines includes procedures for completing and reporting offset implementation, as well as delivery obligations. However, sanctions for breaches of contracts are not included in the Guidelines. [4]

Due to the nature of the defence industry, which requires a level of confidentiality, information on offset contracts is rarely disclosed publicly in South Korea. The lack of transparency results in malpractice in procurement. In May 2019, the Bureau of Audit and Inspection (BAI) pointed out malpractice in procurement when an offset contract was made between the South Korean government and the US. [1]

Procurement officers overseeing offset contracts are responsible for managing and analysing offset contracts, including suppliers’ performance appraisals, in theory. [1] However, the BAI audit report revealed that procurement officers were caught reporting false information to tender boards. It indicates that existing personnel may not be able to sufficiently monitor the malpractice of suppliers. [2]

There is clear evidence action was not taken following a breach of contract. When the DAPA signed an agreement with the U.S. government to import Lockheed Martin’s F-35A, the supplier agreed to assist the launch of South Korean military satellites as part of F-35 offset deals. But the agreement was not implemented fully, due to the budget constraints of the supplier. Although the contract was not carried out based on the original deal, sanctions have not been applied to the supplier. [1]

The procurement act, and the public financial management act do not spell out any policy on offset contracts [1, 2]. The SPLA White Paper on Defence, in its discussion of procurement strategy, does not mention the term either [3]. There are no examples of offset contracts in the public domain, for example, no media coverage.

As outlined in 70A and 71A, there is no mention of any policy on offset contracts in the the procurement act, the public financial management act or the SPLA White Paper on Defence [1, 2, 3]. There are no examples of offset contracts in the public domain, for example, no media coverage. As such, there is no transparency of offset practices.

The acquisitions process in the defence and security framework in Spain is regulated by Defence Instruction 72/2012 (standardising the procurement of armament and defence equipment processes as well as the programme management) and the Defence Instruction 67/2011 (that standardises the equipment resource procurement processes) [1]. Instruction 67/2011 comprehensively deals with reporting and supervision, and expressly considers the possibility of offset contracts, as set in Section 6.4.d.6: “On each element identified, or on groups of these, the following actions will be carried out: (…) To study the possibilities of establishing industrial cooperation agreements and compensations derived from the contemplated procurement alternatives, as well as their compatibility with the international commitments acquired by Spain in matters of international cooperation, and analyze their risks.” This instruction comprehensively regulates the creation of a “Follow-up Committee”, and Section 9 expressly deals with “Direction, follow-up and control of the programmes”. Section 9 regulates the production of follow-up reports every six months and the minimum content for those reports, including the deviations and breaches in performance by contractors; the economic, financial, and budgetary situation of the programme: certification milestones met, contractual modifications, price revisions, other cost variations, budgets, and updated payment schedule; the programmatic situation: fulfilment of the most significant technical milestones, deliveries, deviations produced along with their causes, and updated, detailed planning with special attention to the delivery schedule; the main risks of the programme, and prevention and mitigation measures adopted; the impact of deviations and non-compliance on the benefits of the solution, deadlines, and costs of the programme; and the proposal of corrective measures [2]. There is no additional or specific regulations for “offset contracts”.

According to Manuel García Ruiz, Director of Support for Industrial Development at ISDEFE, an Industrial Cooperation Agreement (ACI) “is negotiated with each and every one of the bidding companies. Such agreements constitute a legal document that is negotiated in parallel with the acquisition contract and that is signed by the supplying company and the Ministry of Defence. The aforementioned agreement is signed in both Ministry-supplier commercial purchases and government-to-government purchases (…). Who accepts the obligation is the foreign supplier company, be it the main contractor or subcontractor of a Spanish company“ [3]. García Ruiz states that “the ACI is a legal and contractual document and has its own terms and conditions: qualitative; quantitative; temporary; of compensation for breach, relative to the commitment assumed by the foreign supplier. Attached to the agreement is the compliance plan which identifies in detail the activities that the foreign supplier plans to carry out to make the commitment effective” [3]. Both the DGAM and ISDEFE are the responsible bodies to negotiate and supervise an ACI [3].

Procurement contracts are available on the Public Sector Procurement Platform website [1], where general information of both tenders and adjudications are available. However, they include neither details nor copies of the contract. Many contracts (and their potential modifications) are not publicly available, including contracts negotiated secretly and others where the information is made confidential. As stated previously, most contracts have been negotiated without publicity for several years and whilst no specific figures have been found on the type of contracts awarded in Industrial Cooperation Agreements, the nature of these agreements suggests that there is significant information not being disclosed. In addition, the guidelines for compensation are not public, but rather issued by the Minister of Defence through internal and confidential procedures [2].

Overall, limited public information is available on offset contracts. In spite of extensive efforts, involving up to ten interlocutors, some could not or did not want to answer questions related to these contracts. This included formal requests through the Portal of Transparency and direct dialogue with the Ministry of Defence.

Section 9 of Instruction 67/2011 expressly deals with “Direction, follow-up and control of the programmes”. Section 9 regulates the production of follow-up reports every six months and the minimum contents for those reports, including the deviations and breaches in performance by contractors; the economic, financial, and budgetary situation of the programme: certification milestones met, contractual modifications, price revisions, other cost variations, budget and updated payment schedule; the programmatic situation: fulfilment of the most significant technical milestones, deliveries, deviations produced along with their causes, and updated detailed planning with special attention to the delivery schedule; the main risks of the programme, and prevention and mitigation measures adopted; the impact of deviations and non-compliance on the benefits of the solution, deadlines, and costs of the programme; and the proposal of corrective measures [1]. One of the main conditions in Industrial Cooperation Agreements is the setting of partial milestones of compliance with industrial cooperation commitments to ensure gradual compliance [2].

For international cooperation programmes, a Follow-up Committee is mandatory, as stated in Section 9.3 of Instruction 67/2011. This committee is composed of at least nine people (potentially more) including the corresponding deputy director-general; the head of the area designated by the director-general responsible for monitoring the programme; the head of program; the technical director of the programme; a representative of the contracting body; a representative of the General Directorate of Economic Affairs; a representative of the military, the branches or units that are destined for the resources that are the object of the programme; when required, a representative of the organ in charge of its maintenance or operation throughout its life cycle; a representative of the Joint Chiefs of Staff when the programme derives from military planning; a representative of the General Subdirectorate of Inspection and Technical Services, when it is necessary to report on the industrial activity carried out by the contractors; and other representatives of the organisations involved in the development and execution of the programme, which are deemed necessary depending on the type of resource to be obtained. Contractors may be summoned to participate in the Monitoring Commissions to review the status of the work in progress or any other matter related to the development of the programme or the execution of the contract [1]. No evidence was found of a mandatory external verification process.

There is not enough information to score this indicator. Industrial Cooperation Agreements establish economic penalties for non-compliance: “failure to comply with the commitment at the end of the compliance period carries a penalty in the form of liquidation of damages, payable to the Public Treasury, in the form of a certain percentage of the breach of the total commitment”, and “failure to meet partial milestones leads to an increase in total commitment, in the form of a certain percentage of failure to meet the milestone” [1].

However, no evidence has been found on frequency or specific cases of breaches of contract. Information regarding breaches of contracts is not publicly available. As shown in 67D, there is only anecdotal evidence of laws in Spain opening the door to publicity of sanctions, but this is optional, anecdotal, and in general related to the environmental sector, and it is not expected that anything similar will be used in the defence sector, and companies are not interested in disclosing their breaches of contracts [2]. There is no evidence about any public reporting on statistics of breaches or any other similar information, whilst breaches of contracts are said to be frequent also in International Cooperation Agreements (which may include offset contracts). As stated in an article of the Ministry of Defence’s journal, “almost all of the [Special Armement] programs have experienced variations in their three basic parameters: costs, deadlines and requirements” [3], and according to an evaluation by the secretary of state for defence, “the contractors have acquired excessive power as a result of the limited control exercised by the Ministry,” “delays and cost overruns are common, even going so far as to breach the requirements [for manufacturing the contracted systems], without this dynamic implying a requirement of responsibility and debugging it ” [4].

When expressly asked about the number of contracts not sufficiently completed in the last three years and about the measures taken for breaches in contracts, the Ministry of Defence answered that “regarding the information on the number of contracts that have not been sufficiently completed, these reports are not prepared within the Ministry of Defence, so it is not possible to provide consolidated information or data”, with no further suggestion or reference to where that information can be found, and in other cases, the questions were simply not answered [5]. Similar questions regarding numbers on the breach of contracts and related consequences and where to find/ask for the necessary data were not answered either in an interview by email with the Ministry of Defence [6]. Some experts interviewed agreed, with no exceptions, that they did not know where to find such information while expressing that they believe that this is information is not available.

When asked through the Portal of Transparency about the number of sanctions for companies, including exclusions for future contracts, related to corruption practices or collusion in the last three years, the Ministry of Defence answered that “the requested information is available” in the Official Registry of Bidders and Classified State Companies (ROLECE), in section “companies in a situation to contract”, with no further explanation [7]. However, on the ROLECE website, this information was not available [8, 9]. When asked, the spokesperson at the ROLECE confirmed that the only information available is to check whether a specific firm’s name was in the list of companies that can be contracted. No other information, including whether that company was not in the list because of not having register or any other reasons or because of being in a situation of prohibition to be contracted, and of course that no information will ever be provided on the reasons why a company is prohibited of being contracted, is available [10]. When questions on the number and type of judicial cases directly related to corruption involving the Ministry of Defence were submitted to the Ministry of Justice through the Spanish Portal of Transparency, the official answer was that “the required information refers to activities of judicial bodies that are not subject to Administrative Law, but to Procedural Law. Consequently, this Justice Transparency Information Unit considers that it incurs in the preceding exposition and resolves its inadmissibility as the provisions of the aforementioned Law are not applicable to activities subject to Procedural Law,” and referred to statistical data from the General Council of the Judiciary or the National Institute of Statistics [11]. However, the information requested could not be found on these sites. Given the lack of conclusive evidence on this issue, this indicator is not scored and is marked ‘Not Enough Information’.

A review of Sudan’s Public Procurement Act of 2010 [1] did not yield any evidence that the Government of Sudan has adopted formal policies or procedures that outline the reporting and delivery obligations for offset contracts.

A review of the websites of the Ministries of Defence, Interior and Finance [1,2,3], as well as an interview with an expert on Sudan’s defence sector [4], yielded no evidence that the Government of Sudan makes any details about offset contracts transparent. The International Budget Partnership’s 2017 Open Budget Survey for Sudan scored Sudan’s transparency 2 out of 100, its public participation 0 out of 100 and its budget oversight 31 out of 100 [5]. Sudan’s security and defence activities are exceptionally secret and opaque. Notably, a Conflict Armament Research study found that former President Bashir’s regime ‘has continued and extended its efforts to conceal the origin of weapons and ammunition it uses on the battlefield, possibly to conceal violations of end-user agreements with supplier governments’ [6].

A review of the websites of the Ministries of Defence, Interior and Finance [1,2,3], as well as an interview with an expert on Sudan’s defence sector [4] and an internet search of media reporting, yielded no evidence that the Government of Sudan takes any action against defence and security contractors found to be guilty of breaches of contract.

As with all international arms transfers, offset contracts is a common practice in Swedish arms export. However, regulation in this area is severely lacking, as there are no formal policies or procedures that outline the reporting and delivery obligations for offset contracts [1] [2]. Swedish NGOs have expressed strong concerns regarding the lack of attention paid to offset practies in Sweden [3] [4]. Sweden subscribes to the EDA’s Code of Conduct on Defence Procurement [5], and whereas this code includes some recommendations regarding reporting and monitoring of contractors, it does not include any legally binding procedures for sanctioning or related mechanisms.

Since no formal policies or laws outlining the reporting and delivery obligations for offset contracts exist [1] [2], the government is not obliged to regularly make details about off-set contracts publicly available. On the contrary, NGOs and researchers have criticised the government for its severe lack of transparency in this area [3] [4]. An interviewee suggests that the little information that does exist regarding the use of offset contracts in previous arms trade deals has been unveiled by investigative journalists, rather than published by officials or involved companies [5].

As noted in Q58B, Q61A, and Q67B, information in the post-award stage of the procurement cycle is an area which generally lacks transparency in Sweden [1]. This also applies to the monitoring and reporting of delivery obligations in offset contracts, as this is a largely unregulated practice in Sweden [2] [3] and since the Law on Commercial Confidentiality [4] restricts the parliamentary auditing of companies.

As no offset-related policies exist [1] [2], and since current legislation rather protects the integrity of private companies [3], the government and its procurement agencies do not seem to possess the tools necessary to act upon breaches of contract.

General policies and resources for offset procedures are provided in a policy document issued by armasuisse [1]. The lead firm has to designate a point of contact and all firms have to agree to the monitoring conditions as well as being added to a publicly available offset registry (Article 6) [1]. The status of the offset contract is monitored and verified by armasuisse twice a year. In addition, there is an annual meeting with the supplier. There is a minimum of a five per cent sanction on the value of the contract in cases of breach of the agreement [1, 2]. However, it appears that no such sanctions were necessary in recent years [2]. There is also evidence that armasuisse requires foreign suppliers to complete a detailed pre-approval form and declaration form, which is reviewed and revised on a yearly basis [3].

There is a publicly available registry where since 1 April 2018 firms participating in an offset deal agree to be listed. This list is updated regularly and provides details of the foreign supplier, the Swiss counterparts and the percentage of the offset deal that is covered [1]. The firms are only added to the registry after the approval of the offset contract. Therefore there is no possibility for the public or civil society to comment before the contract award [2].

Although there is not a systematic nuanced performance appraisal for offset contracts, Armasuisse officials verify if the contractually agreed terms have been observed. There are bi-annual follow-ups and a yearly meeting with the supplier [1, 2]. Foreign suppliers have to fill out an Offset Declaration Form with detail on the procurement and provide supporting material in order to prove the exchange has happened and is not a regular business transaction. The Swiss supplier has to sign the form and agree to a potential audit. Armasuisse in cooperation with the Offset Office verifies and approves the value [3].

The lead firm has to designate a point of contact or might even have to establish a coordination office in Switzerland for big projects in order to offer an open channel of communication with Armasuisse [1]. There are also bi-annual follow-ups and a yearly meeting with the supplier [2]. The state of the offset contract is monitored and verified twice a year. In addition, there is a yearly meeting with the supplier. There is a minimum of a five per cent sanction on the value of the contract in cases of breach of the agreement [1, 2]. The Offset Policy also indicates that non-fulfilment or false declarations in relation to an obligation can result in exclusion from future contracts [1]. However, there are no examples of these sanctions being enforced in recent years [2]. As a result, there is not enough information to score this indicator.,

Some formal policies and procedures that outline reporting and delivery obligations for offset contracts are provided in the “Ministry of National Defense’s Guidelines on Industrial Cooperation” [1] and several additional directions, namely:
1. Directions Governing Penalty Provisions for Breach of Industrial Cooperation Regulations by Contractor.
2. Directions Governing Payment of Contribution by Participants of Industrial Cooperation Program.
3. Directions for Export Control of Technologies acquired through Industrial Cooperation Programs.
4. Directions for Handing Performance of ICP Transaction in Excess of Pre-Approved Credits.
5. Directions for Supervising the Implementation of ICP Transactions.
6. Directions for Demand Planning and Utilization of Industrial Cooperation Projects.[3].

However, according to the CY, procedures for reporting on completed work, addressing inadequate work, sanctioning, and for following the chain of command are yet to be adequately devised [2].

The Ministry of Economic Affairs reveals the progress of offset programmes annually; the latest report available to the public was published on December 26, 2019 for 2019. This report provides a general view and superficial descriptions on issues concerning offset programmes [1].
Various information on specific offset projects are published also in the Government Research Bulletin. [2].

A colonel from the Armaments Bureau of the MND has suggested that transparency is a critical issue to be considered by the government; he has argued that “the more transparent offset programme is, the more awkward the position of the MND’ [3].

CY points out that monitoring mechanisms are needed since several flaws in Taiwan’s offset programmes (including unprofessional coordination, insufficient monitoring, and incoherent execution) have been detected [1]. CY’s report indicates that monitoring mechanisms are insufficient in Taiwan’s offset programmes. Completion reports are inadequate and rarely verified [1].

There is not enough evidence to score this indicator.

Experts have criticised the enforcement of implementing offset programmes in Taiwan; according to rough estimates by local journalists, NT$16 billion of taxpayers’ money was wasted on offset programmes concerning defence and security in Taiwan up to 2016 due to mismanagements of offset programmes between Taiwan and the US [1]. Taiwan’s offset programmes, it has been alleged, suffers from insufficient uncompleted executions and lack of security clearance mechanisms, which leads to the predicament that, if the contract is not sufficiently completed, action is rarely taken for breach of contract [2].

However, data provided by the Industrial Cooperation Program (ICP) of the Ministry of Economic Affairs indicates that, with reference to breach of contracts, the most recent case was in 2014 [3]. There were no reported cases of contract breaches between 2015 – 2020.

The Public Procurement Act 2011 and its regulations make no mention of offset contracts. [1] [2] An online search found no other legislation or policies that mentioned offsets. There is therefore also no mention of monitoring offset contracts in regulations.

There is not enough information to score this indicator, as it cannot be determined if offset contracts are in place. A search of reports from the Public Procurement Regulatory Authority, Controller and Auditor General and Standing Committee for Foreign Affairs, Defence, and Security yielded no evidence of a list of offset contracts that are published. [1] [2] [3]

There is not enough information to score this indicator. We cannot definitively say that there are no offset contracts in place, and therefore cannot address issues of reporting and delivery obligations regarding them. They are not provided for in legislation, are not mentioned by any of the regulatory and oversight bodies, and there is no information about whether these monitoring reports are produced. [1] [2] [3] [4] [5]

There is not enough information to score this indicator. We cannot definitively say that there are no offset contracts in place, and therefore cannot address issues of reporting and delivery obligations regarding them. They are not provided for in legislation, and are not mentioned by any of the regulatory and oversight bodies. There is no public information about whether or not this enforcement occurs. [1] [2] [3] [4] [5]

In Thailand, there are not any formal policies administrating offset contracts. Apparently, the Thai government has planned to advance its defence industry to reduce dependency on imports, encourage technology transfer and reinforce national security through the offset policy [1]. According to the National Reforms Council, the offset policy should be implemented to promote national security and should be included in the national strategy [2]. At the moment, even though the Thai military has purchased weapons through offset contracts, the lack of formal policies on this matter makes it difficult to investigate the actual benefits the country has gained from the offset projects [3].

According to the Public Procurement and Supplies Administration Act 2017, Section 7, details about military procurement related to national security are exempted from disclosure, especially details about items procured through special methods such as the government-to-government (G-to-G) method [1]. Therefore, the details of the offset contracts made between governments are not publicly disclosed [2].

According to the Public Procurement and Supplies Administration Act 2017, Section 7, any military procurement related to national security is subject solely to internal audit, especially items procured through special methods such as the government-to-government (G-to-G) method or by procurement from foreign defence companies. Nonetheless, the internal audit unit must report the procurement to the Office of Financial and Procurement Audit under the State Audit Office [1,2]. However, due to the lack of formal policies on offset contracts, the existence of monitoring for this kind of procurement is questionable.

Since details about offset contracts for military procurement related to national security are generally exempted from disclosure, it is impossible to know whether breaches of contract have been acted upon or not [1]. According to Interviewee 1, a political scientist, breaches of contract are not acted upon because not all offset contracts are justified or subject to external scrutiny [2].

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).

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).

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).

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).

The framework documents regulating offset contracts are the SSB’s Offset Regulation (2007) and the SSB’s Offset Guidelines (2011) [1,2]. Article 12 of the SSB’s Offset Regulation authorises the SSB as the only and primary executive monitoring body [1]. According to this article, the SSB has the right to monitor all stages of the contracting and implementation processes and can suspend the contract for up to one year in cases of minor violations and can annul the contract in cases of major violations [1]. However, according to Interviewee 4, these framework policies are vague and loosely-defined, and suggested that there are no well-defined and established formal policies or procedures that outline the reporting and delivery obligations for offset contracts [3].

Interviewee 4 suggested that the SSB provides some details of offset contracts and programmes to the defence industry firms and sectoral chambers, such as the Defence and Aerospace Industry Manufacturers Association (SASAD), but these details are not made public. He also underlined that some whispers may be heard within the defence/security community, but nothing can be found on open sources about offset contracts or the possible opportunities to be provided to the firms accordingly [1].

Interviewee 4 emphasised that there is no regulation/tradition of procurement offices conducting reporting and delivery obligations at all [1]. Interviewee 6 suggested that even financial auditing officers working at the Ministry of Defence do not have full information about offset contracts because these contracts are managed solely by the SSB. He underlined that the SSB is not even inclined to share details about offset contracts with the Ministry of Defence [2].

Given the lack of substantial evidence on this issue, this indicator is not scored and is marked ‘Not Enough Information’. Since offset contracts are managed within the SSB and there is no open-source information about this, it is not possible to comment on the enforcement carried out by the SSB regarding offset contracts. Interviewees 5 and 6 could not provide any insight on this because it is out of their area of expertise [1,2].

Research has not identified any legistlation, policies and procdeures dealing with offset contracts in Uganda.

There is not enough information to score this indicator. No evidence of offset contracts was identified for the period of research covering this index. Therefore, it is not possible to assess tranparency of the process.

There is not enough information to score this indicator. No evidence of offset contracts was identified for the period of research covering this index. No information was also found on any monitoring concerning offset contracts. There was no response from the Procurement Disposal Unit in the Ministry of Defence and Veterans Affairs (MoDVA), despite several attempts at getting an interview.

There is not enough information to score this indicator. No evidence of offset contracts was identified for the period of research covering this index. As a resuIt, is difficult to ascertain whether or not enforcement mechanisms are in place regarding offset contracts. There was no response from the Procurement Disposal Unit in the Ministry of Defence and Veterans Affairs (MoDVA), despite several attempts at getting an interview.

Offset contracts are regulated by the same Law which regulates procurement of classified defence goods and services [1]. This means that goods and services procured under offset contracts are subject to the same regulations which apply to the procurement of domestic defence goods and services. In particular, the Law “On State Defence Order” stipulates that suppliers report on the execution of a defence order, that customer controls the quality of goods and services at all stages of development, production, modernization, utilization and repair and that in case of improper performance of the defence order the guilty party pays for the damages [1]. The CMU resolution also provides the procedures for offset contracts [2].

Ukrainian legislation on offset contracts does not stipulate that offset contracts are to be published [1, 2]. The legislation also does not outline any anti-corruption-related offset requirements that should be set for a foreign supplier [3]. Moreover, offset contracts are used for procurement of goods under State Defence Orders which consequently makes information on these contracts classified and not subject to publication. Lastly, the deputy minister of economy stated in an interview that Ukraine did not have any offset contracts (as of October 27, 2017) [3].

There is an offset commission set up under the Ministry of Economic Development and Trade of Ukraine as a permanent advisory body to coordinate the activities of offset business entities regarding the conclusion, implementation and control of the execution of offset agreements [1]. According to this order, the commission is tasked with examining quarterly reports of offset beneficiaries on the execution of signed offset agreements, suggesting offset businesses how to comply with the conditions of the offset agreement, and adjusting the schedule of the offset obligations fulfilment [1]. The commission also drafts and submits annually to the minister of economic development and trade information on the execution of offset agreements [1]. The order does not outline any provision on separate verifications.

Following the start of Russian aggression [1, 2] in Ukraine, the VRU amended the Law On State Defence Order [3] in 2015, making the use of offset contracts non-mandatory. This led to the situation when offset contracts are de-facto not used anymore [4]. However, even before the beginning of the armed conflict in 2014, the share of offset import contracts was insignificant [4]. The MoD does not have any information on the evaluation of offset proposals during the tender process, evaluation and monitoring of offset contracts after the determination of the contract participants and measures to limit the risk of corruption with respects to the lack of use of the offset mechanisms [5].

This assessment has thus far demonstrated that there is no evidence or knowledge about the internal procedure and policies that outline the reporting and delivery obligations for offset contracts shared on the website of Tawazun Economic Council, which is run by Tawazun Holding L.L.C. (1). Furthermore, it has been established through this assessment that the UAE Federal Procurement Resolution No. 32 of 2014, amended in resolution No. 43 of 2016, representing the country’s national legislation in relation to procurement, explicitly exempts the Ministry of Defence, the Supreme Council for National Security and the Ministry of Interior (2), (3). Offset contracts occur through the Office of the Crown Prince Mohammed bin Zayed Al Nahyan (4), (5), (6).

This sub-indicator has been marked as Not Applicable, as it is irrelevant within the context of the UAE to assess transparency in relation to the government’s monitoring of offset contract, for several reasons: firstly, defence contracts, including offset contracts, are exempt from federal procurement resolutions applicable to the majority of government departments, and secondly, it is not within the mandate of the government to monitor offset contracts as it does not negotiate or manage them (1), (2), (3). As stated before, it is organized by the Office of the Crown Prince.

This sub-indicator has been marked as Not Applicable, as it is irrelevant to assess transparency in relation to the government’s monitoring of offset contracts, for several reasons: firstly, defence contracts, including offset contracts, are exempt from federal procurement resolutions applicable to the majority of governmental department, and secondly, it is not within the mandate of the government to monitor offset contracts as it does not negotiate or manage them (1), (2), (3). As stated before, it is organized by the Office of the Crown Prince.

This sub-indicator has been marked as Not Applicable, as it is irrelevant to assess the enforcement of the government’s policies concerning the monitoring of offset contracts since these policies do not exist (1), (2), (3).

This indicator is marked Not Applicable, given the fact that offsets are prohibited under the World Trade Organisation’s (WTO) Agreement on Government Procurement (GPA) [1].

This indicator is scored ‘Not Applicable’ because the United States prohibits any federal agency from entering into any offset agreement [1].

Venezuelan legislation does not provide regulations on offset agreements, nor are there any government policies that promote or seek the regulation of cooperation agreements on the sale and purchase of military equipment. Military cooperation agreements for which there is information do not qualify as offset agreements.

The Venezuelan constitution states that the executive may enter into treaties and agreements, which must be ratified by the National Assembly [1]. Since 2016, when the current AN was installed, the government has not entered into any new cooperation agreements; however, the old agreements remain in force without the possibility of access to information on the details of these agreements [2]. In terms of arms purchases, the AN lacks information on the agreements made for previous acquisitions, and for the few acquisitions made after 2016 [3].

During the previous AN’s term, discretion was imposed over the contents of military cooperation agreements. Civil society organisations have criticised this AN decree, given that it contravenes the constitutional right of access to information and there is no law regulating the confidentiality of information as required by the constitution [4].

Based on available information on military technical cooperation agreements entered into by the last two Venezuelan governments, none of these agreements qualify as an offset agreement. Although there are agreements on military training, the manufacture of weapons, and parts for acquired equipment – among other agreements – lack of transparency prevents access to detailed information about these [1].

Civil society organisations have consistently denounced the lack of official information on arms procurement agreements and international cooperation agreements [2]. Reports that have been published on military cooperation agreements are based on unofficial information and on reports from companies in other countries that claim to have agreements with Venezuela [3].

Military cooperation agreements entered by Venezuela in the last few years do not constitute to offset agreements. However, documents published by the Defence Sector Procurement Commitee (CCSD) and annual reports and accounts of the Ministry of the People’s Power for Defence MPPD from years prior to 2015 do not contain reports monitoring the implementation of bilateral military cooperation agreements [1, 2].

The lack of oversight of these agreements has been condemned by civil organisations [3] and by the current AN, which also lacks access to information on the details of agreements and their implementation. Amid the current controversies that have arisen due to the presence of Russian military personnel in Venezuela – justified by a coorperation agreement, according to the Russian and Maduro governments – the AN has denounced that the presence of foreign military personnel does not have its approval, nor are the military agreements cited by both governments known to the AN or the public [4, 5].

Given that there are no regulations on offset agreements and that current military cooperation agreements cannot be classified as offset agreements, the only regulations that Venezuelan legislation has in place are those applying to international treaties and agreements, as well as laws regulating public sector contracting and procurement. According to civil society organisations, there is a widespread lack of knowledge on the implementation of the agreements [1].

Evidence indicates noncompliance with some international cooperation agreements for the development of arms production capacities. The case of the Kalashnikov rifle factory was condemned by the international press, reporting that years after the the signing of the agreement no armament factory had been opened Venezuela [2]. The Venezuelan justice system did not take any action regarding this noncompliance; on the contrary, it was the Russian justice system that announced the noncompliance and the sanctioning of the businessman who was to execute the contract [3].

There are no formal policies specific to offset contracts in the defence sector. Offset contracts are assumed to be guided by some provisions on special projects specified in the Public Procurement and Disposal of Public Assets Act [1]. Otherwise, the delivery and performance of the offset contracts are partly guided by provisions of the Public Procurement and Disposal of Public Assets Act specifically on reporting and delivery obligations, procedures for reporting on completed work, for addressing inadequate work, for sanctioning, and for following the chain of command [2].

The government and the defence sector does not provide a detailed list of offset contracts. The few details of offset contracts in the public domain are usually disclosed by senior government ministers, or even the president, during official visits by supplier countries or during the official opening or launch of some of the infrastructure or equipment [1]. The information on the source and purpose of funding is then publicised by the media, but there will not be information on the terms of the contract or any other specifics [2].

Performance and delivery reports for offset contracts are produced primarily for internal use and are not publicised [1]. Internal circulation and the use of the reports is restricted to senior commanders, and the reports are not usually given to the Office of the Auditor General Zimbabwe for reviews and audits [2].

Verifiable information on breaches of military/defence contracts, and enformcement is not readily available [1,2]. Therefore, this indicator is not scored and is marked “Not Enough Information.”

Select custom	Country	71a. Policies & procedures	71b. Transparency	71c. Monitoring	71d. Enforcement
Select	Albania	0 / 100	0 / 100	0 / 100	0 / 100
Select	Algeria	0 / 100	0 / 100	0 / 100	0 / 100
Select	Angola	50 / 100	0 / 100	NEI	NEI
Select	Argentina	0 / 100	0 / 100	0 / 100	0 / 100
Select	Armenia	0 / 100	0 / 100	0 / 100	0 / 100
Select	Australia	NA	NA	NA	NA
Select	Azerbaijan	0 / 100	0 / 100	0 / 100	0 / 100
Select	Bahrain	0 / 100	0 / 100	0 / 100	25 / 100
Select	Bangladesh	0 / 100	NEI	NEI	NEI
Select	Belgium	25 / 100	25 / 100	25 / 100	NEI
Select	Bosnia and Herzegovina	0 / 100	0 / 100	0 / 100	0 / 100
Select	Botswana	0 / 100	0 / 100	0 / 100	0 / 100
Select	Brazil	25 / 100	25 / 100	75 / 100	NEI
Select	Burkina Faso	0 / 100	0 / 100	0 / 100	0 / 100
Select	Cameroon	0 / 100	0 / 100	0 / 100	0 / 100
Select	Canada	50 / 100	50 / 100	50 / 100	NEI
Select	Chile	0 / 100	0 / 100	0 / 100	NEI
Select	China	0 / 100	0 / 100	0 / 100	0 / 100
Select	Colombia	50 / 100	0 / 100	50 / 100	NEI
Select	Cote d'Ivoire	0 / 100	0 / 100	0 / 100	0 / 100
Select	Denmark	100 / 100	25 / 100	100 / 100	100 / 100
Select	Egypt	0 / 100	0 / 100	0 / 100	0 / 100
Select	Estonia	NEI	NEI	NEI	NEI
Select	Finland	NEI	NEI	NEI	NEI
Select	France	0 / 100	0 / 100	0 / 100	0 / 100
Select	Germany	NA	NA	NA	NA
Select	Ghana	0 / 100	0 / 100	0 / 100	0 / 100
Select	Greece	NA	NA	NA	NA
Select	Hungary	NA	NA	NA	NA
Select	India	100 / 100	25 / 100	50 / 100	100 / 100
Select	Indonesia	100 / 100	25 / 100	25 / 100	NEI
Select	Iran	0 / 100	0 / 100	0 / 100	0 / 100
Select	Iraq	0 / 100	0 / 100	0 / 100	0 / 100
Select	Israel	100 / 100	50 / 100	50 / 100	75 / 100
Select	Italy	0 / 100	25 / 100	NEI	NEI
Select	Japan	50 / 100	25 / 100	50 / 100	75 / 100
Select	Jordan	0 / 100	0 / 100	0 / 100	0 / 100
Select	Kenya	0 / 100	0 / 100	0 / 100	NEI
Select	Kosovo	0 / 100	0 / 100	0 / 100	0 / 100
Select	Kuwait	50 / 100	0 / 100	0 / 100	NEI
Select	Latvia	NA	NA	NA	NA
Select	Lebanon	0 / 100	0 / 100	0 / 100	0 / 100
Select	Lithuania	NA	NA	NA	NA
Select	Malaysia	100 / 100	0 / 100	100 / 100	NEI
Select	Mali	0 / 100	0 / 100	0 / 100	0 / 100
Select	Mexico	0 / 100	0 / 100	0 / 100	0 / 100
Select	Montenegro	0 / 100	0 / 100	0 / 100	0 / 100
Select	Morocco	0 / 100	0 / 100	0 / 100	0 / 100
Select	Myanmar	NEI	0 / 100	0 / 100	0 / 100
Select	Netherlands	50 / 100	25 / 100	75 / 100	NEI
Select	New Zealand	NA	NA	NA	NA
Select	Niger	0 / 100	0 / 100	0 / 100	0 / 100
Select	Nigeria	0 / 100	0 / 100	0 / 100	0 / 100
Select	North Macedonia	0 / 100	NEI	NEI	NEI
Select	Norway	100 / 100	25 / 100	100 / 100	75 / 100
Select	Oman	0 / 100	0 / 100	0 / 100	50 / 100
Select	Palestine	50 / 100	0 / 100	25 / 100	0 / 100
Select	Philippines	50 / 100	50 / 100	0 / 100	NEI
Select	Poland	50 / 100	50 / 100	0 / 100	0 / 100
Select	Portugal	NA	NA	NA	NA
Select	Qatar	0 / 100	0 / 100	0 / 100	0 / 100
Select	Russia	25 / 100	50 / 100	0 / 100	0 / 100
Select	Saudi Arabia	0 / 100	0 / 100	0 / 100	0 / 100
Select	Serbia	0 / 100	0 / 100	0 / 100	0 / 100
Select	Singapore	NA	NA	NA	NA
Select	South Africa	75 / 100	50 / 100	50 / 100	NEI
Select	South Korea	50 / 100	0 / 100	50 / 100	0 / 100
Select	South Sudan	0 / 100	0 / 100	0 / 100	0 / 100
Select	Spain	100 / 100	0 / 100	50 / 100	NEI
Select	Sudan	0 / 100	0 / 100	0 / 100	0 / 100
Select	Sweden	0 / 100	0 / 100	0 / 100	0 / 100
Select	Switzerland	100 / 100	50 / 100	75 / 100	NEI
Select	Taiwan	50 / 100	25 / 100	25 / 100	NEI
Select	Tanzania	0 / 100	NEI	NEI	NEI
Select	Thailand	0 / 100	0 / 100	0 / 100	0 / 100
Select	Tunisia	0 / 100	0 / 100	0 / 100	0 / 100
Select	Turkey	50 / 100	0 / 100	0 / 100	NEI
Select	Uganda	0 / 100	NEI	NEI	NEI
Select	Ukraine	75 / 100	0 / 100	50 / 100	0 / 100
Select	United Arab Emirates	0 / 100	0 / 100	0 / 100	0 / 100
Select	United Kingdom	NA	NA	NA	NA
Select	United States	NA	NA	NA	NA
Select	Venezuela	0 / 100	0 / 100	0 / 100	0 / 100
Select	Zimbabwe	25 / 100	25 / 100	25 / 100	NEI