Tawazun Economic Council
The Tawazun Economic Program, formerly known as the UAE Offset Program, was established in early 1992 to diversify the UAE’s economy and create new ventures in various sectors by partnering with international defense contractors.
To date, the Program has resulted in the creation of several multi-million dollar joint ventures in various economic and industrial sectors including ship building, district cooling, aircraft leasing, fish farming, healthcare, agriculture, banking and education.
The Tawazun Economic Program, which is overseen by the Tawazun Economic Council, seeks to derive economic and commercial value from the country’s extensive defense procurement program, as part of the UAE’s initiatives to modernize and acquire state-of-the-art defense systems.
As with other leading industrial participation programs in the world, the Tawazun Economic Program has evolved over time to cater for the current economic and industrial needs of the country. In early 2008, an initiative to restructure the existing policy into a more interactive one was launched. This continuing initiative is aimed at further enhancing the Program’s role within the UAE, improving the options for defense contractors’ involvement and ensuring a shared drive to create strategic and sustainable projects within the country.
Drivers for success
Elements of the program have been designed to ensure ease of implementation, coupled with the right mix of tools to support it. Its cornerstones are:
- A hybrid model that enables defense contractors to utilize their existing strengths and initial contributions while emphasizing the need to partner with the local private sector in profitable and commercially-viable ventures
- An extension to the base program, referred to thereafter as the ‘grace period’, which assists defense contractors in setting up projects with complex start ups and large infrastructure basis
- Various multipliers to attract defense contractors to contribute towards the targeted areas of focus
- A major transformation from an Indirect to Direct Offset designed to narrow the focus of the program whilst facilitating defense contractors’ contributions by building on their strengths and areas of expertise
- Defense contractors are able to customize their programs by selecting various contribution components made of input and output credit, generating activities that would maximize their fulfillment
- Milestones - previously tied to specific years in the original program scheme - are now spread in proportion to projects’ growth cycle
- Program requirements are communicated in close coordination with the Armed Forces Procurement Department at an early stage to the defense contractor to support more efficient requirement compliance
The revised version of the program was been designed around allowing defense contractors:
- More flexibility in selecting the right mix of credit contribution (input & output) for their projects.
- Ample time for more complex activities in start up, research & development, product design, expertise development, training, etc.
More than 120 countries around the world have some form of industrial participation programs with unique requirements that suit their individual needs. The Tawazun Economic Program has dynamic features that can accommodate the fast growing UAE economy while enabling defense contractors to meet and fulfill their obligations in a mutually rewarding manner.
These guidelines have been prepared to assist contractors and investors in understanding the principles that govern the Program of the UAE.
PURCHASES SUBJECT TO TAWAZUN ECONOMIC PROGRAM
Supply contracts of a cumulative value exceeding USD 10 million in any five year period are subject to Tawazun Economic Council involvement.
The procurement and offset processes start in parallel. A defense contractor is informed of the requirement to enter into a Tawazun Economic Program Agreement during the bidding process.
The contract award process is linked to the signing of a Tawazun Economic Program Agreement. This ensures that defense contractors are aware of the UAE offset requirements and have sufficient time to plan the identification and execution of an adequate project to fulfill potential obligations.
LEVEL OF OBLIGATIONS
Projects that are implemented by defense contractors to fulfill their obligations are required to add economic and commercial value to the UAE’s economy equivalent to at least 60% of the supply contract value. The level of obligation does not directly correspond to investments made in an offset venture but rather to the value created by an offset venture in terms of contributions and profits generation over time.
TERMS OF FULFILLMENT
Typically, all defense contractors must fulfill their obligations over a period of seven years. Certain projects are granted a discretionary grace period depending on the level of complexity, sophistication and infrastructure requirements.
A certain level of obligation is expected at the end of each year of a program. These levels have been carefully assessed and linked to the expected growth cycle of a project. Percentage achievements expected are 5%, 10%, 10%, 15%, 15%, 20%, 25% for each year respectively.
CREDIT EARNING ACTIVITIES
A hybrid program consisting of input and output based activities has been designed to allow the defense contractors the flexibility to maximize the structure of their obligation fulfillment contribution model. Input credit generating activities are allowed to form up to 30% of the total obligation of a specific program, while output credit generating activities should not form less than 70% of obligation of that specific program. A list of approved input-credit activities can be obtained by contacting the Industrial Development Unit at the Tawazun Economic Council.
Liquidated damages of 8.5% will be assessed for non-performance. The liquidated damages are imposed on the unfulfilled portion of the obligation calculated at each milestone. Payment of liquidated damages fulfills 50% of the obligation due. The remaining portion is carried forward to a separate account to be achieved after the fulfillment of the last milestone. At maturity of the program, accumulated liquidated damages will be paid back upon satisfaction of the shortfalls.
Areas of Focus
- Aerospace systems
- Munition and Weapon System
- Land Systems
- Naval Systems
- Autonomous system.
- Metals & Advanced Materials
- Radars, Communication, Command & Control
CAPABILITIES, TECHNOLOGY AND KNOW-HOW REQUIRED IN TAWAZUN PROJECTS AS PER THE AREAS OF FOCUS ABOVE:
- System integration.
- Testing & qualifications.
- Program Management.
- MRO (Maintenance Repairs & Overhaul)