Offshore Preocurement

• Author: BY Lieutenant Robert S. Pasley
• Pages: 02

I. INTRODUCTION

1. DEFlXlTION OF TERMS

   The term "Offshore Procurement" is a misnomer but one that is too deeply entrenched to change. Moreover, it reflects in an in-teresting fashion the history of the sudden emergence of the United States Government, and more particularly the Department of Defense, 88 a large scale purchaser abroad.

   In its orginal connotation, "offshore procurement" was a Navy coinage, referring to purchaaes made away from home for the immediate needs of the fleet, for example, fuel or subsistence mp-plies. When the military departments began large Scale purchases abroad, around 1951, contracting officers familiar with Navy terminology began referring to such transactions colloquially as "offshore procurement." The phrase caught on and is now part of the language.'

   Two kinds of "offshore procurement" should be distinguished: (1) purchases abroad for the use of the United States forces, financed out of Department of Defense appropriations (DOD-OSP) ; and (2) purchases abroad for the use of the forces of friendly foreign nations, financed out af military assistance appropriations (MAP-OSP). The former is a continuation of the traditional kind of offshore procurement; the latter is a new concept, which started with the Mutual Defense Assistance Program in 1949" (although it has some roots in the Warid-War I1 Lend- * The author gratefully acknowledges the financial snsistanee of the Ford Foundstion. which made ooaaihle the research on this artiele in WashinLon.

   - .

   D.C., Paris; and eIsewhe;e in Europe. and eipieli~es his appreciation to themany individuals in the Departments of Defense, Justice, and State, who sokindlv furnished information and maferisl. The aoinions and ~ ~ n e l u ~ ~ i ~ n i reprewnt thegov.mmenta1

   LL.B.. 1986,,era1 coume1,

   860-61.

   5.; G.S. Dep't 2 Army, Pamphlet No. 27-163, Procurement Law 266 (lS6l).

   1 Authorized by tho Mutual Defense Aasistanee Act of 1848, eh 626. 63 Stat. 714.

   A00 BBBlS 55

   MILITARY LAW REVIEWLease Program, and some immediate antecedents in the program of aid to Greece and Turkey under the Truman Doctrine of 1947).*

2. VOLC.hlE OF OFFSHORE PROCCREME.VT

   The relative percentages of DOD-OSP versus MAP-OSP have varied aver the years, ranging from B ratio of about 10% DODOSP ta 90% MAP-OSP, in 1956, to just about the reverse today This shift reflects the history of the military assistance program, which gradually rose to a peak during the years from 1949 to 1963, and has since declined ss the allied nations have assumed a greater share of responsibility for providing their own defense.

   Despite the relative decline in the volume of MAP-OSP, the overall figure has remained high. The following table shows, in round figures, the amounb obligated far MAP-OSP during the fiscal years 1964 to 1961:'

   Fiiool Year Obligation8 lor YAP-OSP (I" Yiilians of Daiiarri 1954 ---------------~$ 448.91855 ~ ~

   176.8

   1 8 6 6 ~ ~ ~ ~ ~ ~ ~ ~72.1

   1967 .............

   ~

   __

   To m y figures for MAP-OSP must be added the figure for DOD-OSP. For the years 1962 to 1967 DOD-OSP in Europe came to about $1.5 billion and MAP-OSP to $2.66 billion, a total of $4.16 billion, or a little under B billion dollars a year.' Current estimates range from half a billion to a biliion dollars annually, but the writer has been unable to verify these figures.

   Authorized by the Act af May 22, 1947, eh. 81, 61 Stat. 103. The purehare iiivolved in Gordon Woodroffe Corp. V. Cmted Stetea, 122 Ct Ci. 723, 104 F.Supp. 894 (1952). csit denied. 344 U.S. YO8 (18521, was an early, d unfortunate, example of a sort of offshore procurement contract, sttempted to be piseed under thia act.

   6 Statistier furnished by Assistant General Counsel for International Affairs, Department of Defense.

   3 The fipu1~8 on offshore ~rocumment m EYIOW were obtained from OWes of Sec'y 0-f Defense, Generii Repart, subject: Neyotiafions io7 Rmavs7y o/ Any Govrmmmiol Piofita, 07 Ezersi Reoeipta, L'nder ''No-P~ofits"

   $1101.8

   Cioiues

   o i Oflshare PioruremenL Eilotrrd8 ?n the Euraiisnn Awa (June 30. 1816)(h&n=fter referred to BQ the Hasgland Report)

   56 ico B363B

   .......

   ............. ~..~...~...~ 143.1

   1958 ............................................... 41.41 9 5 Y ~ ~82.3

   1 8 6 o ~ ~ ~ ~ ~ ~ ~ ~78.1

   1961- .... ~...~.~~~ .....

   ~

   ~

   ......... ....

   ~...~~~...~~~

   65.2

   Total . ~ ~ . . . ~ ~ ~

   ~~~~~~~~~~~~

   OFFSHORE PROCUREMENT

3. OFFSHORE PROCUREMENT DISTINGUISHED FROM OTHER TYPES OF PROCUREMEKT

   Offshore procurement is to be distinguished, on the one hand, from non-contractual methods of obtaining supplies and services, and, on the other, from United States participation in or contributions to contractual procurement effected by international agencies and group^.

   Examples of the former are wartime seizures of "booty" and requisitioning of supplies or services in occupied territory. These are governed by the laws of war. the Hague Regulations, and the Geneva CanventiomB In theory, they are unilateral acts of the military or occupying power, to which consent of the other party is irrelevant. It has happened, though, when a military occupation has continued long after the actual (as opposed to the legal) termination of hostilities, with peacetime conditions restored in ail but name (as was the case in Western Germany immediately prior to the Bonn Conventions),. that "requisitioning" may 88- sume more of a contractual appearance, even to the paint of using standard contract farms, with only minor changes in language. Legally. however, it remains "requisitioning," a unilateral, non-contractual act, to which contract rules and regulations are inappiicsbie.?

   Examples of the second category to be distinguiahed from offshore procurement are the NATO infrastructure program, to the cost of which the United States contributes as a member of NATO, but which is carried out by NATO as an international entity, and the Weapons Production Program, a mutual procurement program in which the United States and ather nations participate jointly (although the latter has offshore procurement aspects).

   Contrasted with thew, offshare procurement is contractual praeurement effected by the United States as one contracting party with a foreign government or foreign supplier as the other. This article will treat mainly of offshare procurement in this sense,

   Beat V. United States, 292 F.2d 274 (Ct. CI. 19611, in U.S. Dep't of Amy, Pamphlet No. 715-60-84, 8 11, para. 9 (1962) (Proeuremenf Legal Servieel: Paul7 V. United States (Ct. GI., No. 12-56, March 1, 1961). Cl. 71 Harv. L. Rev. 568 (1968).

   i The Bonn Canventions first became effective in 1862. Convention on th8 Rights and Obligationa of Foreign Forces and Their Members in the Federal Republic of Germany. with snnexea. May 26, 1862, as amended by the Paris Protocol, Oet. 28, 1964 [I9551 6 U.S.T. & O.I.A.

   4278, T.I.A.S. KO.

   8425, 882

   U.N.T.S. 3, and a8 avpplemented by the Convention on the Presence of For-eign Forces in the Federal Republic of Germany, Oct. 28, 1954 [1956] 6 U.S.T. & O.I.A.

   6689, T.I.A.S. No. 8426.

   A00 4948B 57

   5 Beat V. United Ststen, awra note 6.

   although some attention will be paid to certain types of mutual procurement, because of their obvious kinship with offshore procurement proper and because they represent the most important current development in this area.

4. PURPOSES OF OFFSHORE PROCCREiUEYT

   The primary purpose of DOD-OSP in the same 88 that of DOD procurement in general: the obtaining of necessary supplies and services for the United States forcea. Where these forces are stationed abroad, it is often more economical, bath from the standpoint of time and money, to obtain supplies and Services tn situ. Where perishable auppiies are invalved, It may be a matter of simple necessity.

   The primary purpose of MAP-OSP is the same a8 that of military assistance in general: ta promote peace and security by providing support to friendly foreign nations and international organizations, with a view to the common defense against internal and external aggression.' Again, considerations of economy play an important role, since by definition the nations and organizations to be aided are located abroad.

   An ancillary purpose of offshore procurement, especially MAPOSP, but one which was more important in its earlier stages than it is now, ia to provide a form of economic assistance to friendly foreign countries by awarding contracts to their nationals, and even more to the point, to help these nations establish a production base for building up ther own sources of military supply.

   While offshore procurement plays an important, if diminishing, role in military assistance, there are countervailing tendencies which tend to channel B substantial Segment of foreign assistance, including military assistance, through domestic sources af supply and to that extent reduce the volume of offshore procurement. First, there is the strong protectionid bias which runs through government procurement, evidenced mast clearly by the existence of the Buy-American Act," but felt even more in the fareign a8sistance area. Secondly, there is the need, which has become acute in the last few years, to keep to a minimum the loss of our gold reserves and reduce the unfavorable balance of payments which has arisen to haunt our economy. These factors have re-sulted in some specific Statutory and administrative restrictions

   The purp~esai the military assmtanee program, and ai the foreign assist.

   Bnee Program of whleh it 13 B part, m e et forth I" Sections 102 and 502 of the Faresgn h~sl~tanee

   Aer of 1961, 75 Stat. 421, 22 U.S C. SB 2151, 2301(SUpP 111, 1962).

   I ' Act of >larch 3, 1933. ch 212, tit. 111, 47 Stat 1520. as amended. 41 U S.C. 8s 10s-d (1958).

   58 AGO 11838

   ~~ ~

   OFFSHORE PROCUREMENT

   an offshore procurement which will be discussed below. It was stated in 1960 that of every military assistance dollar, 88% is spent in the United States and only 12F overseas.'L

5. AUTHORITY ANU FUNDS FOR OFFSHORE PROCUREMENT

   28 Fmei~n Assistance Act of 1861...