• KW KRUK I WSPÓLNICY

What to do next with weapons purchases?

13.01.2021

Author: Jarosław Kruk - attorney at law, managing partner


My distinguished colleague, Marek Świerczyński, wrote an article for Polityka.pl about Polish arms purchases in the USA, under the meaningful title "Poland in the forefront of America's sponsors". After presenting the history of our purchases, he states that they are not followed by any technology transfer and thus the subsequent money flow to Poland, the expenses for the purchase are 1/4 or 1/3 of all costs that we will have to bear and that the (especially unrealized) offset only cannot be continued. Much like FMS deals which are a simple off the shelf purchase. According to Mr. Świerczyński, there is no need to terminate already signed contracts, but we should try to persuade the US to cooperate in business and technology in the field of defense, similar to the one they have with Western Europe. He proposes to start writing appropriate letters to President Biden so that they will appear on his desk after January 20, 2021, tempting the US to spend another 11 billion dollars with them.

All good. Full and real cooperation with the US in the defense industry and more would be very useful to us. In addition to the obvious technological benefits for the economy, this may reduce the cost of maintaining purchased equipment and create many well-paid jobs. It will not hurt to write appropriate letters to President Biden, however, as far as the contracts signed and in advance are concerned, I see little chance of success.


Firstly, government-government contracts are signed, introducing major changes is difficult and time-consuming, also due to politics. The government contracts, the FMS, are followed by contracts signed by the US government with their suppliers, in the case of Poland - mainly Lockheed Martin and Raytheon. Adding responsibilities to these concerns would require certain concessions from the US government or pressure on the companies. It would also require a great or even enormous political will on the part of the government there, and the letters to President Biden alone would not be the reason for this. Probably the companies could get along with their government, but they also have effective legal defense measures in their contracts, which they could use, if necessary.


It is worth noting that our country's lobbyists have a persuasive power of at most a few percent of the power of the largest recipient of US military aid. And I am ready to bet a case of champagne that the lobbyists of both concerns have more power than the Polish ones. The arguments of both great arms manufacturers would be simple - after all, we have technological and business cooperation with Polish companies. LM would point to the factories in Mielec, Raytheon, for example, cooperation with the Teldat company (and according to rumors, it was available for purchase until recently). Moreover, it would be easy for them to prove that the majority of Polish defense companies with the participation of the State Treasury do not meet their technological and organizational criteria and, unfortunately, they would be right here.


It is worth realizing that according to Anglo-Saxon legal culture, what matters is the final contract that must be implemented, not the arrangements and promises made during the negotiations. Both the local government and contractors are used for negotiations, bargaining, changes in the negotiation process, etc. They treat arms business and arms exports as a business that is to bring them profit and, at the same time, enable them to achieve certain strategic benefits. Simple. They always come up with the most favorable proposal, which is completely natural and understandable. And how a partner, after a small fairs, basically accepts their proposal, is his business - he is perceived, as the classic puts it, for "weakling". It is difficult to break free from such "reputation" later.


In my opinion, we are considered as a "weakling" for a long time, and this opinion was strengthened after the purchase of the Himars, without any offset or any benefit to the economy. The argument for such a solution was very twisted - that the PGZ offer was too expensive, and the strategic situation urgently required the purchase of equipment that is known to US Army soldiers. You could think of something better, especially when the purchased amounts of equipment and ammunition are only suitable for a parade, and not for fighting a serious opponent, and the fact that in this area we had really great technological and production possibilities. And so we bought equipment that has inch screws. It was similar with the contract for the purchase of the F-35. We bought them without conducting any tender. Other countries, such as Belgium or Finland, made tenders, compared the offered aircrafts and the economic offer. And the excellent manufacturer of the F-35 had to compete with other suppliers. He probably had to reduce the price and give areas for economic cooperation with the local business by signing appropriate agreements. The explanation that we have negotiated not worse, but even better conditions than Belgium, is obviously untrue. In Poland, nothing is heard about any business ventures related to the purchase of the F-35 and they probably will not come, because why would LM spend extra money, when everything is guaranteed. In Belgium, on the contrary, a lot is happening, of course they are starting to complain about LM's failure to meet its economic obligations, but they always have legal measures within. We have nothing.


Mr. Świerczyński rightly proposes to change this state of affairs, but how to do it?


First, use US-US competition. Sometimes similar systems are produced by two or three manufacturers, so negotiations with all of them should be conducted until the very end, and if there is a European producer, then include him in the tender procedure as well. The supplier will not be sure of success, and in the event of US-US competition alone, political pressure will cease, the administration will not be able to officially favor anyone, and companies will compete with each other. The bonus is given for their own sales, not for competitors;


Second, never state that we’ve already chosen a particular product and not publicly indicate that the contract will be concluded until specific date. In such cases, the supplier immediately stiffens his position because he knows that we are acting under duress;


Third, use any legally permitted construction, offset, on-site servicing, etc.;


Fourth, remember that arms trade is good business and our potential suppliers will not be offended if we demand a lot during the negotiations, and if they are offended, it is only for show. For that purpose, it would be better to open up the market more widely to EU suppliers, and nothing does as well to offers as competition. Do not get down on your knees in front of suppliers, there is always an alternative;


Finally, treat private industry same as state-owned industry. Soon we will have another restructuring of PGZ, and from 2015 the sixth or seventh management team, and everyone can see the results. The interests of the state can be guaranteed through contracts, not necessarily through ownership.


Much more needs to be done and it must be realized that the much-desired partnership cooperation between Poland and the US in the field of armaments is not easy to obtain, and it takes a long time to get rid of the "weakling" opinion.

KW Kruk i Wspólnicy          Kancelaria Prawnicza Sp.k.

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