On the normality and abnormality of offsets obligations

Defence offsets have often been described as government‐to‐business compensation arrangements or contracts involving “reciprocity beyond that associated with normal market exchange”. This paper argues that it is irrelevant and misleading to use this notion as a criterion for defining offsets.

The paper also explores the apparent inconsistency between the maximising efficiency in defence procurement and the application of offsets requirements. It is shown that defence offsets are a subset of all the price‐quality‐quantity trade‐offs which in general characterise negotiations surrounding complex transactions.

It is argued that although reciprocal or offsetting arrangements are a normal aspect of commercial transacting, the operation of certain offsets schemes namely mandatory offsets obligations, may inhibit the buyer's flexibility in negotiating deals and result in inefficient procurement. This leads us to ask why these offsets schemes have persisted for so long.