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The question of fixed prices is central when buying the F-35. The question arises as to who bears the financial risks should the purchase and operation turn out to be more expensive than what is offered. Now experts from the USA say that the US government cannot offer any fixed prices.
The law firm Covington, which is also active in the armaments sector, is one of the large and well-known law firms in the USA. She represents arms companies in court and offers advice on arms exports under US law. While Covington’s attorneys do not want to comment specifically on the Swiss deal, they are prepared to answer fundamental questions in writing.
Therefore, the fundamental question is: Can the US government offer a partner government fixed prices? Fred Levy, Partner at Covington, and Noree Lee, Special Counsel, respond: The U.S. government did not know the final pricing at the time the contract was finalized:
Because the US government conducts the procurement after the two countries have entered into a contract, it does not have final pricing at the time the contract is formed. The US government does not provide a fixed, guaranteed price quote as part of the contract price.
So no guaranteed fixed prices in the offer and in the contract. The lawyers explain this with the course of an international arms deal. An arms deal with the United States is based on two contracts. On the one hand there is the offer and the contract between the two governments. Here, the lawyers say, the prices are based on estimates. Only then does another contract follow in a second step, negotiated between the US government and the armaments company that produces the weapon system.
Adjustment to inflation possible
Lee and Levy write: “Final pricing will not be determined until the contract between the US government and the US defense company has been fully negotiated.” The price is only fixed when the second contract is final. This can then be a fixed price contract. But here, too, there could still be uncertainty one day. The US Department of Defense recently issued a memorandum released. In it, the US government explains that future fixed-price contracts can be supplemented with a clause.
This clause is intended to make it possible to adjust the prices in the fixed-price contracts more or less automatically to inflation. According to this understanding, Switzerland will only know the definitive price for the 36 F-35s when the US government has negotiated the fixed-price contracts in a few months or years. In the worst case, only when the bills arrive. SRF has asked the Federal Armaments Office (Armasuisse) for an opinion. At the time of going to press, Tuesday 12 noon, it had not responded.
DDPS comments
In the statement on the report of the financial control, the Defense Department (DDPS) writes that it has received guarantees that the prices in the offers will also correspond to the prices in the fixed-price contracts. The DDPS stated in writing:
The USA and Switzerland have negotiated a specific clause for the procurement of the F-35-A and also signed a separate declaration that states the fixed price character.
Switzerland also has access to these contracts and has a high level of cost security and transparency. Now only the USA itself can provide clarity. The US Embassy in Bern writes: “According to the contract negotiated between the two governments, the US government buys the product from the manufacturer under a fixed-price contract that also takes inflation into account and sells it on to Switzerland at the same price.”
No further details
The US government is referring here to the second part of the deal, the fixed-price contracts, which have yet to be negotiated. SRF has checked both with the US embassy and directly with the US Department of Defense in Washington, where binding fixed-price contracts are currently already in place for the Swiss F-35. The answer is: “At this point in time we cannot announce any further details.”
Even the US government cannot or does not want to create clarity here. With their fundamental considerations, however, the US lawyers confirm the skeptical view of the financial control, according to which Switzerland probably did not receive any fixed prices from the USA.