An offset obligation is compensation required as a condition of purchase in either government-to-government or commercial sales of primarily aerospace & defence equipment and services to a country. They can take the form of industrial, commercial and political arrangements under which suppliers implement specific projects aimed at partially or fully compensating the buyer's procurement costs or to help the buyer country meet a socio-economic objective.
Increasingly, all major contracts ask for offset obligations. They are now key differentiators in major contracts and it is a fast growing market. Offset obligations imposed on suppliers can, in some cases, be as high as 300% of the original contract price.
For the suppliers, offsets are a key differentiator in winning new business. However fulfilling offsets is a non core business activity for them.
For a more detailed explanation of offset obligations, click here.