Offshore Procurement Program Background Offshore Procurement (OSP) may be defined as the purchase of military equipment and supplies from sources outside the United States for delivery under the Mutual Defense Assistance Program (MDAP) to friendly foreign countries. It does not include the procurement abroad of supplies for the United States armed forces. When plans were first made for MDAP, no consideration was given to the possibility of procuring military equipment offshore for delivery to our allies. It was visualized that this equipment would be taken from existing United States stocks. However, the Korean War upset this plan and the equipment and ammunition in United States stocks which had been earmarked for MDAP deliveries in Europe were diverted to the Far East. The size of MDAP in Europe was also greatly expanded to counter the threat of similar armed attack in the West. United States stocks were therefore unable to provide the essential MDAP end-items. It was decided to place substantial amounts of these orders offshore. This had the effect of helping to establish a mobilization base for war production in friendly countries to provide the maximum amount of replacements, spare parts, and ammunition close to the actual fighting front in case of war. It was hoped that OSP might gradually assist the NATO countries to produce part of their own material for defense and help to restore the European capacity for the production of munitions and military equipment which had been largely destroyed by the war. The plan looked to the maintenance of production in selected foreign plants which would be distributed geographically in accordance with United States strategic views. In addition to achieving a well distributed industrial mobilization base for war production, certain collateral objectives of OSP were (inter alia) to assist the civilian economy through additional dollars and increased employment, to reduce the cost of MDAP deliveries through lower transportation and labor costs, and to provide political support against communist infiltration into labor unions. Relationship of OSP to MDAP OSP orders are placed only to fill specific and approved military deficiencies within MDAP; hence OSP is necessarily an integrated part of MDAP programing and execution. Prior to each fiscal year, extensive bilateral conferences are held between the United States Military Assistance Advisory Group (MAAG) and the foreign military authorities in each country receiving United States military aid, to determine how much of the total logistical requirements of the military forces to be contributed by each country for mutual defense can be supplied in sufficient time through its own procurement and production capacities. These conferences result in an agreed list of military equipment and supplies which can be supplied only by the United States or with United States assistance, if they are to be had at all or in sufficient time to meet the threat. The country lists then pass through a rather complicated series of reviews and screenings locally and regionally in Europe as well as in Washington, with a view to determining what portions shall be obtained from existing United States stocks, from new procurement in the United States, or from OSP. Advice as to political and economic considerations is obtained from the Department of State and FOA, respectively. Incidentally, although a few OSP contracts have been placed in Spain, Yugoslavia, the Federal Republic of Germany (particularly West Berlin), Japan, Formosa, and the Philippines, the bulk has been placed in Western Europe. First Three Years of OSP During fiscal 1952, OSP contracts totaling approximately $630 million were let in Europe. Over one-half of these contracts were let in France, one-fourth in Italy, and the remainder in the United Kingdom, the Netherlands, Greece, Belgium, Luxembourg, Denmark, Norway, Germany, and Switzerland, in the order of decreasing amounts. These contracts included naval vessels, electronics equipment, ammunition, and spare parts. The volume of OSP contracts placed in France includes over $200 million of so-called "Lisbon-type" aid, i. e., existing contracts taken over by the United States in accordance with a pattern established at the meeting of the North Atlantic Council at Lisbon in February 1952, for the primary purpose of giving budgetary support to the French Government. During fiscal 1953, OSP contracts totaling over $1.5 billion were let in Europe. These contracts covered ammunition, naval vessels, jet fighter aircraft, tanks, artillery pieces, radio and radar equipment, and a wide range of other materiel such as spare parts for weapons, vehicles, and aircraft. During fiscal 1954, OSP contracts in the amount of $378 million were let, making a cumulative total of $2.6 billion for the first 3 years. However, payments for deliveries through these 3 fiscal years amounted to only $673 million. The remainder of the items contracted for were in the pipeline at the end of fiscal 1954, with dates of anticipated delivery ranging from a few months to several years. This points up one of the major problems which has developed in OSP; namely, the rather exceptional delays which have occurred in several important contracts, due either to inadequate preliminary preparation or to other reasons. In some cases this may well be expected to result in the delivery of unnecessarily obsolescent equipment. Procedures for OSP Operations In the beginning of fiscal 1952, the United States Government began a series of bilateral negotiations with various foreign countries, for the most part in Western Europe, to establish OSP procedures. OSP contracts are let by the procurement officers of the three services in the various United States field commands. Although the MAAGs have no responsibility for placing OSP contracts, they provide contacts for procurement officers with the Country Team. The procurement officers place them under procurement authority issued by the Assistant Secretary of Defense (ISA) on the basis of refined programs developed by the three military departments to supply the necessary end-items within the limits of available MDAP appropriations. No information has been made available by the Department of Defense to indicate the detailed nature of these programs in advance of the issuance of the actual procurement authority, as will be noted in the various tables to be set forth in the course of this paper. Criteria and Policies Department of Defense Directive 2125.1 dated January 8, 1955, provides current policy guidance for OSP. Emphasis is placed on assisting "friendly countries to achieve the maximum amount of indigenous production of military equipment and materials to meet the requirements of their forces." Procurement is required "in accordance with sound military procurement practices with respect to price, quality, and delivery." Exceptions (from pricing policy) however may be made in Europe by the Defense Representative at Paris, "based on the essential security interests of the United States," and in other areas by the Assistant Secretary of Defense (ISA). The directive also includes certain provisions of the Mutual Security Act of 1954 and of the Mutual Security Appropriations Act for 1955, which require procurement in the United States (and thus in effect prohibiting OSP) when adverse effects upon the United States economy would outweigh the advantages of OSP; when procurement abroad would be detrimental to United States security interests; or when OSP would result in unjustifiable costs or delays. Security Clearances The United States Congress has declared that it is United States policy to strengthen free labor unions overseas by such programs as OSP. The Department of Defense has accordingly directed its procurement officers to deny OSP contracts to firms which consistently and materially support the Communist Party or Communist-sponsored organizations or which engage in certain activities favoring the Communist program. The procurement officer obtains these security clearances from the country team, to which he sends a list of the firms which have been invited to bid or to submit proposals. Clearance is not required for contracts amounting to less than $100,000. Provisions are made for appeal to the Defense Representative at Paris, and even to the Assistant Secretary of Defense (ISA), should clearance be denied by the country team. Economic-Defense Clearances The United States Congress has also declared, through the Mutual Defense Assistance Control Act of 1951 (the Battle Act), that no assistance whatsoever shall be supplied to any nation failing to cooperate in regulating the export of certain strategic commodities to the Soviet bloc, and no military, economic, or financial assistance should be supplied to any nation unless it cooperates in programs for regulating such exports. Political and Economic Considerations Political and economic considerations have entered into the letting of OSP contracts to a degree apparently not at first contemplated. As one example, the United States agreed at the meeting of the North Atlantic Council at Lisbon in 1952 to pick up the check for over $200 million in contracts which the French Government had already placed for war material for Indochina. As mentioned above, this was not OSP in the original meaning of the term but rather direct budgetary support, although justified as being for military objectives. It is generally agreed that this type of aid achieves very little of OSP's original and specific objectives. This is brought out by the fact that one of the contracts thus financed by |