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Thursday, December 01, 2022

Purchase of new fighter jets – F-35: When fixed price becomes a question of faith

It has now become a political question of faith: will Switzerland get the 36 F-35A at a certain price or not?

10 days ago, the Swiss Federal Audit Office (SFAO) published its report on risk management in the “Air 2030” program. It is this project that envisages, among other things, the purchase of 36 F-35 fighter jets. The federal government’s financial controller – he had insight into contracts – came to the conclusion that there was “no absolute legal certainty” with regard to “a fixed value in the sense of a lump sum under Swiss law”.

Was there any doubt about DDPS?

The Defense Department reacted unusually harshly to this statement. The DDPS criticized the financial controls, saying the statement was putting Switzerland’s interests at risk. As proof that there are ultimately fixed prices, the DDPS cited an agreement contractual clause and a declaration jointly signed with the United States, both of which “retain the fixed price character”.

It almost seems that at a certain point in time the DDPS even had doubts as to whether the prices offered by the United States were fixed prices. Otherwise the clause and supplementary declaration would not have been required. This joint declaration was signed only in December 2021, that is, only after the contracts were already negotiated.

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Such doubts are justified. Estimates are standard in US offers and contracts (the so-called Letter of Offer and Acceptance). The general terms and conditions also speak of best estimates. By signing the offer, the purchasing state eventually undertakes to pay the entire invoice, even if the invoice amount exceeds the offer.

US officials never explicitly stated that they would bear the financial risk to Switzerland. Basically, the US government has gone so far as to publicly state that Switzerland as a customer can benefit from the same terms as the US government.

It is also the core of the US arms export arrangement “Foreign Military Sales” (FMS). The US government does not want to profit from the deal. But there was no loss, which they would later pay to American taxpayers.

There’s a budget limit for fighter jets in Switzerland

The question of price remains the Achilles’ heel in this procurement project. Because Swiss procurement authority Armasuis has demanded fixed prices from four fighter jet suppliers. If it turns out that the United States has not submitted a binding price in its offer, then the US providers should in fact be kicked out of the race.

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The DDPS states that a fixed price was neither a suitability criterion nor a prerequisite. So the question of boycott does not arise.

The Swiss population has also set a financial limit of 6 billion francs for the purchase of new fighter jets – plus an increase in price by the date of delivery. Swiss authorities do not have much financial leeway.

The United States currently has high inflation. So the makers of the F-35 and the US government have been negotiating the price of the next three production batches for months – so far without an agreement. Therefore, it will be necessary that the question of fixed prices should not be a question of political faith.

Clarification can only bring a clear declaration from Washington. Yes, we bear the financial risk for you. Or we don’t wear them.

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