Offset obligations are requirements imposed by governments on foreign companies that win contracts to supply military equipment or services. These requirements usually require the foreign supplier to undertake certain activities, such as investing in local industry, transferring technology, or providing training and education to local personnel.
The significance of offset obligations in Swiss military procurement projects cannot be overstated. These obligations are an important way to ensure that the country's defence industry remains healthy and competitive. By requiring foreign suppliers to invest in local industry and transfer technology, the Swiss government is able to encourage the development of local expertise and knowledge. This, in turn, helps to ensure that Switzerland's military forces are equipped with the latest technologies and equipment, which is essential for maintaining readiness.
In addition to ensuring the long-term sustainability of the military capability, offset obligations also provide economic benefits to the country. By requiring foreign suppliers to invest in local industry, offset obligations can help to create jobs and boost the economy. This is particularly important in Switzerland, which has a small population and a relatively high cost of living. By encouraging the development of local industry and expertise, offset obligations can help to ensure that Switzerland remains competitive in the global marketplace.
Legal Basis and Implementation
From a legal perspective, offset obligations are currently based on the Offset Policy of armasuisse, the Federal Office of Defence Procurement. For each procurement project, the Swiss Confederation enters into an Offset Agreement with the supplier, laying down the details of the offset obligations. Typically, armasuisse requires an offset compensation of 100% of the purchase price. It distinguishes between direct offset transactions that are linked to the procurement project and indirect offset transactions with no direct connection to the procured goods or services. Both types are typically subject to a penalty payment in case the respective obligations are not fulfilled by a certain date.
The Swiss Federal Council has recently decided to lay down the basic principles of offset transactions in a law and instructed the Federal Department of Defence, Civil Protection and Sport to prepare a consultation draft for an amendment of the Swiss Military Act (SMA). More specifically, the basic organization and responsibility within the framework of offset transactions, the objective of offset and the best possible observance of an appropriate language-regional distribution are to be anchored in the amended SMA. In addition, a delegation norm is to be created authorizing the Swiss Federal Council to issue an offset ordinance. The Swiss Federal Council is expected to submit the draft law for consultation in spring 2023.
Get in touch
Loyens & Loeff Switzerland regularly advises clients on offset obligations and in related public procurement matters. Please do not hesitate to reach out to Marco Toni or Remo Wagner in case of any queries.