Why Failed So Often the Offset Part of a Defence Procurement Deal? – A Case Study Based Examination

Abstract

An offset obligation is a countertrade which must be accepted in order to win the contract for a superior procurement project. This type of countertrade takes mainly place by government to government and commercial sales in the aerospace and defense business. Offset can be executed in the form of industrial, commercial and political agreements and serves essentially to meet the socio-economic objectives of the buying side. Therefore that today nearly every larger procurement project has offset obligations is the composition of the offered offset package the main distinguishing criterion between the various competitors. The value of such an offset package is accounting a multiple value of the actual procurement project. So, there are many good reasons for the successful execution of offset projects. Nevertheless we have the situation that offset projects are failing! Therefore, with view on the still large amount of outstanding offset projects, it is of great importance for the companies to know the reasons why offset projects are failing. The aim of this paper is to examine the specific circumstances of failing offset projects as part of defence procurement deals. This examination was triggered through a superior research project on the impact of offset at the business processes of SMEs. During the Pre-Study for this research project first indications come into view that not all offset related projects can be finalized successful. The paper concludes with a representation of the offset-specific reasons for the failing of such projects. Furthermore, it also provided the determinants of offset success to avoid these problems in future projects.