Business Opportunities with NATO

The Bureau of Industry and Security (BIS) encourages U.S. firms to pursue bidding opportunities with the North Atlantic Treaty Organization (NATO). U.S. firms may pursue NATO bidding opportunities in two ways: by participating in International Competitive Bidding (ICB) and by registering as a supplier with the NATO agencies.

NATO International Competitive Bidding

For bidding on infrastructure projects (e.g., satellite telecommunications, information technology, and building construction) valued at a minimum of €156,000, the NATO agencies and commands implement International Competitive Bidding (ICB).

NATO ICB requires that qualified firms be nominated to the bidders list by their governments. BIS pre-approves U.S. firms for participation in NATO ICB by reviewing the one-time NATO ICB application.

A link to the NATO ICB application and instructions can also be found in each of the ICB pre-solicitation announcements that BIS posts on FedBizOpps (search Department of Commerce/Bureau of Industry and Security).

To apply for participation in NATO ICB, please submit a completed application and supporting documents by email to This email address is being protected from spambots. You need JavaScript enabled to view it. .

Once a firm has been approved for participation in NATO ICB, the firm notifies BIS each time it wants to be nominated to the bidders list for a NATO ICB project. BIS will then know to issue a Declaration of Eligibility, which is the document used to nominate a pre-approved firm to the bidders list for a particular ICB procurement.

Please contact This email address is being protected from spambots. You need JavaScript enabled to view it. for more information on NATO ICB.

Self-Registration as a Supplier

Joining a supplier database is a good way to become known to a NATO agency. The NATO agencies use their databases to compile bidder lists and distribute Requests for Proposals. The following NATO agencies offer self-registration:

NATO Support Agency (NSPA)

The NATO Support Agency (NSPA) is the principal logistics support agency within NATO. NSPA offers the majority of its opportunities to firms registered in its Source File. NSPA procures supplies, repair and maintenance services, demilitarization equipment, security items, road repair materials, and engineering/technical support.

NATO Communications and Information Agency (NCIA)

The NATO Communications and Information Agency (NCIA) is the principal agency involved in the research and development, procurement, and implementation of C3 capabilities within NATO. Qualified suppliers establish Basic Ordering Agreements (BOAs) with NCIA for a specified range of goods and services.

Supreme Headquarters Allied Powers Europe (SHAPE)

Supreme Headquarters Allied Powers Europe (SHAPE) is a major contracting agency for NATO Crisis Response Operations.

Supreme Allied Commander Transformation (SACT)

Supreme Allied Commander Transformation (SACT) focuses on the transformation of NATO forces and capabilities. The ACT command is co-located with the U.S. Joint Forces Command in Norfolk, Virginia.

Defense Trade Advocacy

The U.S. Department of Commerce coordinates the use of U.S. Government resources and authority in order to level the playing field by advocating on behalf of U.S. business interests as they compete against foreign firms for specific international contracts or other U.S. export opportunities.

For defense trade advocacy requests, Bureau of Industry and Security’s Office of Strategic Industries and Economic Security coordinates the interagency policy review, with the support of the Departments of State and Defense, to determine whether the request is consistent with U.S. foreign policy and national security objectives.

The International Trade Administration’s Advocacy Center is the defense industry’s point of contact for requesting defense trade advocacy.  All requests for U.S. Government advocacy assistance for defense-related projects should be submitted to the Advocacy Center.

Further information on the Advocacy Center’s activities and procedures can be obtained from its Web site.

Offset Definitions

Actual Value of Offset Transactions: The U.S. dollar value of the offset transaction without taking into account multipliers or intangible factors.

Co-production: Transactions that are based upon government-to-government agreements authorizing the transfer of technology to permit foreign companies to manufacture all or part of a U.S.-origin defense article.  Such transactions are based upon an agreement specifically referenced in Foreign Military Sales (FMS) Letters of Offer and Acceptance (LOA) and a government-to-government Memorandums of Understanding (MOU). Co-production is always classified as a direct offset.

Credit Assistance: Credit assistance includes direct loans, brokered loans, loan guarantees, assistance in achieving favorable payment terms, credit extensions, and lower interest rates. Credit assistance specifically excludes the use of “banked” offset credits (credits that exceed the requirement of the offset agreement and are permitted, by the terms of the agreement, to be applied to future offset obligations). Credit assistance is nearly always classified as an indirect offset transaction but can also be direct.

Credit Value of Offset Transactions: The U.S. dollar value credited for the offset transaction by application of a multiplier, any intangible factors, or other methods. The credit value may be greater than, equal to, or less than the actual value of the offset.

Direct Offsets: An offset transaction directly related to the article(s) or service(s) exported or to be exported pursuant to the military export sales agreement. Direct offsets are usually in the form of co-production, subcontracting, training, production, licensed production, or possibly technology or financing activities.

Indirect Offsets: An offset transaction unrelated to the article(s) or service(s) exported or to be exported pursuant to the military export sales agreement. The kinds of offsets that may be considered “indirect” include purchases, investment, training, credit assistance, and technology transfer.

Investment: Investment arising from an offset agreement, often taking the form of capital dedicated to the establishment of a foreign entity unrelated to the defense sale or to expanding the U.S. firm’s subsidiary or joint venture in the foreign country. Investment can be either direct or indirect.

Licensed Production: Overseas production of a U.S.-origin defense article based upon transfer of technical information under direct commercial arrangements between a U.S. manufacturer and a foreign government or producer.  Licensed production is not pursuant to a co-production agreement specifically referenced in a LOA and co-production MOU.  In addition, licensed production almost always involves the manufacturing of a part or component for a defense system, rather than a complete defense system.  Licensed production transactions can be either direct or indirect.

Multiplier: A factor applied to the actual value of certain offset transactions to calculate the credit value earned. Foreign purchasers use multipliers to provide firms with incentives to offer offsets that benefit targeted areas of economic growth.  When a “positive” multiplier is applied to the price of a service or product offered as an offset, the defense firm receives a higher credit value toward fulfillment of an offset obligation than would be the case without application of a multiplier. Conversely, foreign purchasers may apply “negative” multipliers to discourage certain types of transactions not thought to be in the best economic interest of the receiving entity.

Example: A foreign government interested in a specific technology may offer a multiplier of “six” for offset transactions providing access to that technology. A U.S. defense company with a 120 percent offset obligation from a $1 million sale of defense systems ordinarily would be required to provide technology transfer through an offset equaling $1.2 million. With a multiplier of six, however, the U.S. company could offer only $200,000 (actual value) in technology transfer and earn $1.2 million in credit value, fulfilling its entire offset obligation under the agreement.

Offset Agreement: An offset agreed to by the U.S. firm in order to conclude a military export sales contract.  The agreement is normally reflected in a contact that specifies the percentage of the total defense-related export sale to be offset, the forms of industrial compensation required, the duration of the offset agreement, and penalty clauses, if any.

Offset Transaction: Any activity for which the U.S. firm claims credit for full or partial fulfillment of an offset agreement.  Activities to implement offset agreements are categorized as co-production, technology transfer, subcontracting, credit assistance, training, licensed production, investment, purchases, and other.

Offsets: Compensation practices required as a condition of purchase in either government-to-government or commercial sales of defense articles and/or defense services as defined by the Arms Export Control Act (22 U.S.C. § 2751, et seq.) and the International Traffic in Arms Regulations (22 C.F.R. §§ 120-130).

Other:An offset transaction other than co-production, credit assistance, licensed production, investment, purchases, subcontracting, technology transfer, or training.

Purchases:Purchases involve the procurement of off-the-shelf items from the offset recipient. Purchases are indirect transactions.

Subcontracting:In the offset context, subcontracting is the overseas production of a part or component of a U.S.-origin defense article.  The subcontract does not necessarily involve license of technical information.  Instead, it is usually a direct commercial arrangement between the defense prime contractor and a foreign producer.

Technology Transfer:Transfer of technology that occurs as a result of an offset agreement and that may take the form of research and development conducted abroad, technical assistance provided to the subsidiary or joint venture of overseas investment, or other activities under direct commercial arrangement between the defense prime contractor and a foreign entity.

Training:Generally includes training related to the production or maintenance of the exported defense item.  Training, which can be either direct or indirect, may be required in unrelated areas, such as computer training, foreign language skills, or engineering capabilities.

 

Guidance for Complying with the Bureau of Industry and Security’s Procedures for Reporting on Offsets Agreements Associated with the Sales of Weapon Systems or Defense-Related Items to Foreign Countries or Foreign Firms

Background
Who must report?
Reporting on Export Sale and Related Offset Agreements
Reporting On Offset Transactions
Terms Used in Reporting on Offsets
Updated Offset Reporting Regulation
FAQs
Do you need additional help?

Background

Offsets are the practice by which the award of defense contracts by foreign governments or companies is conditioned upon commitments from the defense contractor to provide some form of compensation to the purchaser.  In defense trade, offsets can include activities such as mandatory co-production, credit assistance, licensed production, subcontractor production, technology transfer, purchases, training, and foreign investment.

The use of offsets is commonplace in global defense trade.  Today, virtually all of United States’ defense trading partners impose some type of offset requirement.  Countries require offsets for a variety of reasons including easing the burden of large defense purchases on their economy, increasing or preserving domestic employment, obtaining desired technology or promoting industrial sectors.

In 1984, the U.S. Congress added Section 309 on offsets in defense trade to the Defense Production Act (DPA) (50 U.S.C. app § 2099), requiring the President to submit a report to Congress on the impact of offsets on the defense preparedness, industrial competitiveness, employment, and trade of the United States.  This provision has subsequently been amended, most recently in 2009 as Section 723 (U.S.C. App. § 2172, but the purpose of the report remains the same.  Since 1992, the Secretary of Commerce has been the President’s Executive Agent for carrying out Section 723 responsibilities.  Section 723 authorizes the Secretary of Commerce to develop and administer the regulations necessary to collect offset data from U.S. firms.  The Secretary of Commerce has delegated this authority to the Bureau of Industry and Security (BIS), which implements Section 723 through the Offset Reporting Regulation, 15 CFR Part 105.

Who must report?

Any U.S. firm that enters into a contract to provide defense articles or defense services to a foreign country or foreign firm pursuant to an offset agreement exceeding $5 million in value must report that agreement.  In addition, U.S. firms must also report each offset transaction completed in performance of existing offset commitments for which offset credit of $250,000 or more has been claimed from a foreign representative.

As noted in § 701.4(b) of BIS’s Offset Reporting Regulation, U.S. firms must only report to BIS on offset agreements that they are directly responsible for reporting to the foreign customer, regardless of who performs the transaction.  In other words, prime contractors must report for their subcontractors if the subcontractors are not direct parties to the offset agreement.

In addition, U.S. firms should not report to BIS on offset agreements that their foreign subsidiaries or affiliates enter into with foreign countries if the U.S. firm is not a party to the offset agreement.  However, if a foreign subsidiary or affiliate of a U.S. firm performs an offset transaction that is credited toward an offset agreement to which the U.S. firm is a party, the U.S. firm must report that transaction to BIS.

The deadline for reporting all new contracts and transactions signed or executed as described above is June 15th of the subsequent year in which they occurred.

Firms must submit their data in hardcopy to the Offset Program Manager, U.S. Department of Commerce, Bureau of Industry and Security, Room 3876, 14th Street and Constitution Avenue, N.W., Washington, DC 20230, and as an email attachment to This email address is being protected from spambots. You need JavaScript enabled to view it. . Email attachments must include the information in a computerized spreadsheet or database format.  All submissions must include a point of contact (name and telephone number).

Reporting on Export Sale and Related Offset Agreements

Reports must include the information described in § 701.4(c)(1) of BIS’s Offset Reporting Regulation.  The following table format is provided to assist with the reporting of export sales and related offset agreements. Firms may add comments or explanations relating to the information as footnotes attached to the reports.

Suggested Format for Reporting on Export Sale and Related Offset Agreement

Name of country purchasing weapon system or service

Name or description of weapon system/ service

Month that the offset was signed Military export sale classification (NAICS 6-digit code) Foreign party to the offset agreement (identify the foreign government agency or branch that is signatory to the offset agreement Value of the export sale (if the sale involves more than one NAICS code, list each code and the associated value Total value of the offset agreement Terms of the agreement (in months) Offset agreement penalties for non-performance(e.g., liquidated damages, debarment from future contracts, added offset requirements, fees, bank credit guaranties, or other)

Reporting On Offset Transactions

Reports on offset transactions must include the information described in § 701.4(c)(2) of BIS’s Offset Report Regulation. U.S. firms are required to provide an itemized list of offset transactions completed during the reporting period.  The list should include the elements listed below for each such transaction (numerical estimates are acceptable when actual figures are unavailable; estimated figures shall be followed by the letter “E”).  The following table format is provided to assist with the reporting of offset transactions.

Suggested Format for Reporting on Offset Transactions

Date (month and year) the original offset agreement was signed)

Name of foreign country involved in the military export sale

Name of offset performing entity Name of country in which offset was fulfilled Name of offset receiving entity (entity receiving benefits from the transaction) Actual value of the transaction Credit value of the transaction Description of offset transaction category (co-production, tech transfer, subcontract, training, purchase, cash payment, etc.) Offset transaction classification (6-digit NAICS code(s) Offset transaction type (direct or indirect)

Terms Used in Reporting on Offsets

The following definitions are provided to assist with the classification and reporting of offset activities:

Offset Agreement: An offset agreed to by the U.S. firm in order to conclude a military export sales contract.  The agreement is normally reflected in a contract that specifies the percentage of the total defense-related export sale to be offset, the forms of industrial compensation required, the duration of the offset agreement, and penalty clauses, if any.

Offset Transaction: Any activity for which the U.S. firm claims credit for full or partial fulfillment of an offset agreement.  For the purpose of analysis, BIS divides offset transactions into nine different categories, which are defined in the “Types of Transaction” section below.

Direct Offsets: Offset transactions that are directly related to the article(s) or service(s) exported or to be exported pursuant to the military export sales agreement.  Direct offsets are usually in the form of co-production, subcontracting, training, production, licensed production, or possibly technology transfer or financing activities.

Indirect Offsets: Offset transactions that are unrelated to the article(s) or service(s) exported or to be exported pursuant to the military export sales agreement.  The kinds of offsets that may be considered “indirect” include purchases, investment, training, credit assistance, and technology transfer.

Actual Value of Offset Transactions: The U.S. dollar value of the offset transaction in U.S. dollars without taking into account multipliers or intangible factors.

Credit Value of Offset Transactions: The U.S. dollar value credited for the offset transaction by application of a multiplier, any intangible factors, or other method.  The credit value may be greater than, equal to, or less than the actual value of the offset.

Multiplier: A factor applied to the actual value of certain offset transactions to calculate the credit value earned.  Foreign purchasers use multipliers to provide firms with incentives to offer offsets that benefit targeted areas of economic growth.  When a (positive) multiplier is applied to the price of a service or product offered as an offset, the defense firm receives a higher credit value toward fulfillment of an offset obligation than would be the case without application of a multiplier.  Conversely, foreign purchasers may apply “negative” multipliers to discourage certain types of transactions not considered to be in the best economic interest of the receiving entity.

Types of Transactions:

Co-production: Transactions that are based upon government-to-government agreements authorizing the transfer of technology to permit foreign companies to manufacture all or part of U.S.-origin defense articles. Such transactions are based upon an agreement specifically referenced in Foreign Military Sales (FMS) Letters of Offer and Acceptance (LOA) and a government-to-government Memorandums of Understanding (MOU). Co-production is always classified as a direct offset.
Credit Assistance: Credit assistance includes direct loans, brokered loans, loan guarantees, assistance in achieving favorable payment terms, credit extensions, and lower interest rates. Credit assistance specifically excludes the use of “banked” offset credits (credits that exceed the requirement of the offset agreement and are permitted, by the terms of the agreement, to be applied to future offset obligation). Credit assistance is nearly always classified as an indirect offset transaction but can also be direct.
Investment: Investment arising from an offset agreement, often taking the form of capital dedicated to the establishment of a foreign entity unrelated to the defense sale or to expanding the U.S. firm’s subsidiary or joint venture in the foreign country. Investment can be either direct or indirect.
Licensed Production: Overseas production of a U.S.-origin defense article based upon the transfer of technical information under direct commercial arrangements between the U.S. manufacturer and the foreign government or producer.  Licensed production is not pursuant to a co-production agreement specifically referenced in an LOA and co-production MOU.  In addition, licensed production almost always involves a part or component for a defense system, rather than a complete defense system.  Licensed production transactions can be either direct or indirect.
Purchases: Purchases involve the procurement of off-the-shelf items from the offset recipient. They are indirect transactions.
Subcontracting: In the offset context, subcontracting is the overseas production of a part or component of a U.S.-origin defense article.  The subcontract does not necessarily involve the licensing of technical information.  Instead, it is usually a direct commercial arrangement between the defense prime contractor and a foreign producer.
Technology Transfer: Transfer of technology that occurs as a result of an offset agreement and that may take the form of research and development conducted abroad, technical assistance provided to the subsidiary or joint venture of overseas investment, or other activities under direct commercial arrangement between the defense prime contractor and a foreign entity.
Training: Generally includes training related to the production or maintenance of the exported defense item. Training, which can be either direct or indirect, may be required in unrelated areas, such as computer training, foreign language skills or engineering capabilities.

Updated Offset Reporting Regulation

On December 23, 2009, BIS published a final rule in the Federal Register updating its Offset Reporting Regulations. The December 23, 2009 rule clarifies the information BIS is seeking to receive from industry and requires that industry provide more precise information on the industry sectors in which offset activity occurs.  Firms reporting pursuant to the Offset Reporting Regulation must use the requirements in the final rule.

The December 23, 2009 rule’s most significant new data requirement is that U.S. firms must classify products and services involved in offset agreements and transactions triggering a reporting requirement by six-digit North American Industry Classification System (NAICS) code.  NAICS is the standard industrial classification system used in the United States. Prior to the publication of the December 22, 2009 rule, BIS required industry to classify offset transactions by broad industry classification and to provide a name, date, and description of the military export sale.  BIS directed firms to use the Standard Industrial Classification (SIC) codes for assistance in identifying an appropriate category for offset agreements and transactions.  The SIC was replaced by the NAICS in 1997 (See 62 FR 17288, Apr. 4, 1997).

All companies conducting business with the U.S. Government, including those involved in military export sales with associated offset contracts, are required to classify their products and services in accordance with the NAICS. The U.S. Census Bureau posts instructions on its web site on how to properly classify products and services in accordance with the NAICS.  The Census web site also contains a search feature that allows users to identify NAICS codes for their products and services based upon a keyword search. BIS’s December 23, 2009 rule also lists illustrative examples. Note that if an offset agreement or transaction involves more than one NAICS code, firms should report all of the appropriate codes as well as the value of the transaction related to each NAICS code.

The December 23, 2009 rule also updates the definitions used by firms in preparing their submissions for BIS.  For example, the definition of “offset transaction” in § 701.2(f), removes reference to activities not commonly reported to BIS (i.e., countertrade, barter, counterpurchase, and buy back) and adds reference to frequently reported activities (i.e., credit assistance, training, and purchases).

The December 23, 2009 rule also provides additional clarity for U.S. firms by adding examples for each type of offset transaction found in the illustrative list in § 701.2(f).  For instance, Example 1 to § 701.2(f), clarifies that “co-production” includes transactions that are based upon government-to-government agreements authorizing the transfer of technology necessary for a foreign company to manufacture all or part of a U.S.-origin defense article.  Such transactions are based upon agreements specifically referenced in Foreign Military Sales (“FMS”) Letters of Offer and Acceptance (LOA) and government-to-government co-production Memorandums of Understanding.  If the LOA does not specifically address the transfer of technology, then the transaction is more appropriately classified as “licensed production.”

Additionally, in Example 4 to § 701.2(f), BIS clarifies that a U.S. company making arrangements for a line of credit at a financial institution should be classified as “credit assistance” (distinguishable from the use of credited or “banked” offset credits, which would be classified as “other”).

In order to clarify the individual status of performance measures and non-performance penalties, the December 23, 2009 rule separates their reporting requirements by moving them from old § 701.4(e)(1)(vii) to new § 701.4(c)(1)(viii) and new § 701.4(c)(1)(ix), respectively.  The rule also includes lists of examples for each.

New § 701.4(c)(2)(ii) requires companies to report for each offset transaction the date when the related offset agreement was signed.  This data will allow BIS to better track the fulfillment of offset agreements and to identify trends in offset transaction activity.

Finally, the December 23, 2009 rule adds new § 701.6 describing the penalties available under the Defense Production Act (50 U.S.C. App. 2155) should companies not comply with BIS’s regulation. Willful violation of the Defense Production Act may result in punishment by fine or imprisonment, or both.  The maximum penalty provided by the Defense Production Act is a $10,000 fine, one year in prison, or both.  The U.S. Government may also seek an injunction from a court of appropriate jurisdiction to prohibit the continuance of any violation of, or to enforce compliance with, the Defense Production Act.

Do you need additional help?

You may contact Ron DeMarines, Offset Program Manager, at (202) 482-3755 or (202) 482-4506, or by email at This email address is being protected from spambots. You need JavaScript enabled to view it. for assistance.

Impact of Offsets in Defense Trade

The Bureau of Industry and Security (BIS) prepares an annual report to Congress on the impact of offsets in defense trade pursuant to Section 723 of the Defense Production Act of 1950, as amended.

Offsets in defense trade encompass a range of industrial compensation arrangements required by foreign governments as a condition of the purchase of defense articles and services from a non-domestic source.

BIS collects data annually from U.S. firms involved in defense exports with associated offset agreements in order to assess the impact of offsets in defense trade.   BIS updated the Reporting of Offsets Agreements in Sales of Weapon Systems or Defense-Related Items to Foreign Countries or Foreign Firms regulation (15 CFR Part 701) in 2009.

BIS also participates in an interagency team established to consult with foreign nations on limiting the adverse effects of offsets in defense procurement.

This Web site includes a wide range of offsets in defense trade resources, including the Offset Reporting regulations, recommended format for reporting offset activities, frequently asked questions on offsets, and copies of recent reports to Congress and the Presidential Policy on Offsets.

For other resources, see below:

Final Rule on Reporting Offset Agreements, 12/09

Offsets Reporting Requirement for Calendar Year 2011

Recommended Format for Reporting Offset Activities

Offset Definitions

Guidance for Reporting on Offset Agreements

Offsets in Defense Trade: FAQs

Changes in Offset Reporting Regulations -- Feb. 3rd Presentation

Eighteenth Report to Congress, 12/13

Seventeenth Report to Congress 2/13

Sixteenth Report to Congress, 1/12

Fifteenth Report to Congress, 1/11

Fourteenth Report to Congress, 1/10

Thirteenth Report to Congress, 12/08

Twelfth Report to Congress, 12/07

Eleventh Report to Congress, 2/07

Tenth Report to Congress, 1/06 | Appendices

Ninth Report to Congress, 3/05 | Appendices

Offsets in Defense Trade and The U.S. Subcontractor Base Report, 8/04 | Appendices

Eighth Report to Congress, 7/04 | Appendices | Appendix E

Seventh Report to Congress, 7/03 | Appendices

Sixth Report to Congress, 2/03 | Appendices | Appendix D

Fifth Report to Congress, 5/01

Fourth Report to Congress, 12/99

Third Report to Congress, 8/98

Second Report to Congress, 8/97

First Report to Congress, 5/96

1990 Presidential Policy on Offsets