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Japan eyes longer-term military hardware procurement contracts with U.S. to cut costs

  • June 18, 2018
  • , Mainichi , p. 3
  • JMH Translation

The Defense Ministry has begun to study the introduction of new 6-10 year contracts for the procurement of equipment under the U.S.’s Foreign Military Sales (FMS) program in order to cut costs. It hopes to reduce costs through bulk procurement of parts and so forth under blanket contracts for the projected number of purchases. The plan is to extend the Long-Term Contract Act, which is due to expire at the end of the current fiscal year, and to apply this to contracts from FY19 to procure the cutting-edge F-35 stealth fighters and related equipment.


Procurement under FMS has been increasing rapidly in recent years. While Japan is obliged to accept the quotes and delivery dates set by the U.S. under this system, it has the advantage of enabling Japan to purchase of state-of-the-art equipment. Although most purchases cover periods longer than five years, multiple contracts are signed each year because the Public Finance Law stipulates that allocations for government contracts can only be made for periods not exceeding five years.


However, splitting up the contracts makes companies unable to draw up long-term production plans and orders for parts are only placed on a yearly basis, resulting in higher production costs. This has been criticized for pushing up the procurement costs of defense equipment.


For this reason, the Defense Ministry is considering signing FMS contracts exceeding five years from next year under the Long-Term Contract Act that authorizes a procurement period of up to 10 years in cases where this would cut costs for the procurement of advanced equipment.


The Long-Term Contract Act is a limited-term special measures law passed in 2015. This has been applied to the procurement of the P-1 reconnaissance aircraft manufactured in Japan, but has never been applied to FMS procurement. This is because the financial authorities were unable to prove cost cutting benefits through long-term contracts due to insufficient data provided by the U.S. on the equipment to be purchased.

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