Industrial Participation (IP)
- Aims of Industrial Participation
- Qualifying transactions
- Administration of IP obligations
- IP procedure
- Pre-contractual IP
In defence procurements from abroad, the purchasing country normally requires industrial participation (the term ‘offset’ is also used) from the seller company. The IP transactions aim at offsetting fully or partly the value of the foreign procurement. IP is normally directed towards maintaining and developing the defence industry of the purchasing country, but it can also be used to further other industrial and economic policy aims.
In Finland, industrial participation is a precondition set by the Finnish Parliament for large foreign defence procurements. Industrial participation is normally required when the value of the procurement exceeds EUR 10 million. In special cases, the Finnish Ministry of Defence may decide that IP is not required even if the contract value exceeds EUR 10 million.
Aims of Industrial Participation in Finland
The principal aim of industrial participation is to help the Finnish defence industry to get the necessary maintenance, overhaul and development capacity of the purchased military systems, and other promotion of the Finnish Defence Industry. Secondarily, IP aims at promoting the Finnish small and medium-sized industry, transfer of new technology to Finland and other important industrial cooperation between Finnish and foreign companies.
The possible types of industrial participation are listed in the Rules on Industrial Participation, effective as from 30 August 2006. The transactions are classified in order of importance. The IP Contractors are expected to direct their IP activities into these areas with emphasis on the first two categories.
- Manufacturing of parts, assembly, testing etc. of the purchased equipment, as well as getting the necessary knowledge for the maintenance and further development of the equipment
- Other defence-related work placed in Finland, and supply of sophisticated technology to the Finnish defence-related industry
- Promoting the internationalisation and exports of the Finnish small and medium-sized industry
- Transferring new technology to Finnish industry, or other significant cooperation between Finnish and foreign firms
- With the consent of the Finnish Committee on Industrial Participation, new exports of high-technology products or other important international products of the Finnish industry can exceptionally be accepted for IP
Direct industrial participation (No 1 above) transactions are normally agreed with the purchasing authority in advance, and are therefore eligible. An indirect IP transaction can qualify provided that the Contractor is instrumental in creating the transaction, the transaction significantly benefits Finnish economic interests, the transaction (product) is at least of similar high technical standard as the procured equipment, and the transaction pertains to one of the 5 categories listed above.
Traditional Finnish exports, or continuation of established business relations are not eligible, nor are transactions with an offset value of less than EUR 10,000.
Administration of Industrial Participation in Finland
The Ministry of Defence is responsible for negotiating the IP agreements, and signs the agreement normally simultaneously with the procurement contract. After the IP agreement has been concluded, the Ministry of Employment and the Economy is responsible for its administration.
The Ministry of Employment and the Economy (MEE) has nominated the Finnish Committee on Industrial Participation (CIP) to perform the actual administration of IP agreements. In addition to the MEE representatives, the Committee has representatives from the Ministry of Defence and from the Ministry for Foreign Affairs.
The secretariat of the CIP is in charge of the preparation of IP matters for the CIP. The secretariat is placed in the Enterprise and Innovation Department of the MEE.
The address of the CIP is:
Finnish Committee on Industrial Participation
Ministry of Employment and the Economy
PO BOX 32
Commercial Counsellor Marjaana Aarnikka
Ministerial Adviser Henri Backman
Senior Adviser Pertti Hämäläinen
Telefax + 358 9 1606 4788
IP Procedure in Finland
The IP preparations should start already at the Request for Quotation phase of the procurement. The Ministry of Defence requires not only that the bidders commit themselves to perform the IP obligation(s), but also that they present a plan and a provisional list of IP transactions. Especially the direct IP package should be agreed upon in advance, before the final award of contracts.
It is the responsibility of the Contractor to find the IP partners in Finland and make the proposals for the IP transactions. Information on the Finnish Defence Industry can be requested from the Association of Finnish Defence Industries (Mrs. Tuija Karanko 1.1.2010). Information about Finnish exporting companies can be obtained from Finpro (Mr. Matti Rasimus).
The IP claims and requests for preliminary opinion shall be submitted to the CIP using a special claim form (link below).
The CIP may make pre-contractual agreements (Record of Understanding, ROU) with potential suppliers for the Finnish Defence Forces. A proposal for a ROU shall be submitted to the CIP. A precondition for a ROU is that the Contractor is participating in a competition for a military procurement or that there otherwise is a potential project in sight. Another precondition is that the ROU arrangement is also accepted by the Finnish Ministry of Defence.
A ROU is a voluntary instrument meant for preparing for a future IP obligation, if the Contractors so wish. Finland does not require pre-contractual IP from potential Contractors. The existence of a ROU may not have any effect on the decisions of the Finnish Defence Forces regarding defence procurements. The credits on a pre-contractual IP account can be used to discharge any obligation that the contractor gets during the validity of the credits. Transfers to other Contractors are generally not allowed.