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DEFENCE I OFFSET

Jarosław Kruk 

DEFFENCE DIRECTIVE VS. OFFSET

29/12/2012

Soon the amended public procurement law will enter into force by virtue of which the ‘Defense Directive’ (Directive 2009/81/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security) has been implemented. The government has announced significant investment in the Polish defense power which is to be developed on the basis of or at least with the substantial support of the Polish defense industry. Sounds very good and conforming.

Since 2000 a new system aimed to strengthen the Polish defense industry – offset has been operating in Poland. Until recently offset has been divided into direct one, targeted at the needs of the State’s defense, 50% of the contract value and the indirect, civil one. For the past two years the Ministry of Economy, in principle, only allows the direct offset.

At the time of conclusion of the contract the public was assured that offset was a remedy for all the ills of the economy. Meanwhile this is not the case, offset may help individual establishments or defense industry branches, and it has actually brought several thousand jobs plus some good technologies.

The State Administration, despite the fact that it does not have the best view of its functioning, has gradually learned to use offset. More developed States, including Scandinavian countries, also use it, even with big success. To make matters more precise, in those countries it is referred to as the law on industrial cooperation or something of the kind and of course, no potential supplier of military equipment is obliged to comply with this law and he still has a chance to win a tender for the supply of weapons but so far none did.

As local lawyers say, nor is he likely to win it in the nearest future. Last time ideas came up to submit offset to the Ministry of National Defence. Two options are clashing -all goes to the Ministry of the National Defense starting from today, or only new contracts go into the care of the Ministry of the National Defence, the older ones will be left for the economy to deal with.

Then we will obtain the effect of reducing prices for purchased equipment, for the military officers know best what can be produced in Poland, and the foreign supplier will certainly be willing to substantially reduce prices if he does not have to ‘do stupid offset’. The idea sounds seemingly good and smart. As long as the foreign manufacturer is not required to do offset, he will reduce the price.

Here the question arises whether the foreign producer will actually reduce the price. Is it not wishful thinking on the part of the Ministry of the National Defense or, as it is said, of the Ministry of Finance, which also does not like the idea of income tax exemptions for direct offset. In my opinion, this manufacturer, selling his goods and services in different countries around the world, sees offset as a bit troublesome ailment.

It is everywhere, frequently under different names and, in fact, you can live with it. What’s more is has been around for a long time, so I got used to it. If it’s abolished, will I give the Poles a discount, maybe a few percent or perhaps not at all. We will certainly be granted bonuses in our corporation. In our practice, it is even possible to set up a central office for the offset issues –  this gives so many work places, its subordination to the Ministry of Culture, which, by the way, I think is one of the best or maybe it would be best to just abolish the law. Unfortunately, then there is a risk that all the existing suppliers will sue Poland before various arbitrations and they will have a good chance of winning. However, the offset’s transfer to the Ministry of National Defence is practically its abolition, but effected in a subtle way.

 

 

 

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