Do Not Ignore Your Obligation

There I was … working an unrelated program in a major customer country.

I was in the offsets office of the country. They were very polite and the greetings and business card exchanges went very well. Then … the hammer fell … on me!

“Why are you delinquent in your past offset obligations?”

Now, I had – as part of a large defense contractor – even sounded out the other divisions; in a large company, that is no mean feat in and of itself. We were supposed to be free and clear of past offset. So, my first thought was, ‘who lied?’ Not a very generous thought, I admit. As the offset office gradually unfolded the story (I will say, with some mischievous glee), they laid out the fact that a small company my current entity had acquired had, yes, dear reader, acquired an offset obligation that had been totally ignored by the previous company. My first response was, ‘so, you are drawing down the performance bond, correct?’ The answer was ‘no.’ The policy allowed either a draw down, or an extension of the obligation with a 10% penalty. Every year. This was year Three of non-performance, so the penalty was already up 30%. Guess what happens next year? (Yup. This is simple middle school mathematics here.) So, Mister Really Big Defense Contractor after a Really Big Contract, don’t you think you can spare a dime to complete this legacy offset requirement?

The answer: of course. And we did. But it was a surprise ding on our carefully planned offset proposal.

Moral: Offset Managers should be party to acquisitions to help in risk mitigation. Or, when buying a company with past international contracts, build in a levee for potential undisclosed offset obligations.