Foreign Military Sales
Sentfore Insights
This note explains how a United States company ends up supplying a Foreign Military Sale, who holds the contract, which rules govern it, and what the purchaser pays on top of the equipment.
The contracting relationship, the organisations that run a case, how the Federal Acquisition Regulation applies, the limits on what a foreign customer may direct, the role of the security cooperation office, and the administrative surcharge.
How to market to a particular country, and any advice on a specific pursuit.
Under Foreign Military Sales the supplier's customer is the United States government. Section 22 of the Arms Export Control Act "authorizes DoD to enter into contracts for resale to foreign countries or international organizations" (DFARS 225.7300(a)), and the resulting contract is placed by a United States contracting officer.
The contrast with the commercial route is set out in the notice an implementing agency sends a purchaser when a commercial sale is preferred. It reads: "If a commercial transaction is undertaken, the USG shall not be a party to the contract; therefore, all aspects of contract performance must be between your government and the company" (SAMM C4.3.6.3).
A supplier on an FMS case therefore negotiates, performs and invoices in the familiar United States government relationship, while the partner government's agreement sits above it, between the two states.
DSCA directs the programme but does not buy. The manual describes an implementing agency as the military department organisation or defence agency "responsible for the overall management of actions for delivery of the materiel, supporting equipment, or services set forth in the SC programs and activities being provided to a foreign partner" (SAMM C1.3.2.6).
Each case has a named owner. The implementing agency "assigns a Case Manager (CM) to each Letter of Offer and Acceptance (LOA) to assist with case development, and to guide execution of the case after implementation" (SAMM C2.2.1). For a supplier tracing a requirement, the case manager is the position that connects the partner's agreement to the contract.
There is no separate acquisition regime for foreign sales. The instruction is one sentence: "Conduct FMS acquisitions under the same acquisition and contract management procedures used for other defense acquisitions" (DFARS 225.7301(b)).
The manual states it from the programme side: "Federal Acquisition Regulation (FAR) provisions applicable to the DoD also apply to FMS procurements". It then gives the reason partners cite. Applying those rules "affords the foreign purchaser the same benefits and protection that apply to DoD procurement and is one of the principal reasons why foreign governments and international organizations prefer to procure through FMS channels" (SAMM C6.3.1).
The manual also records that a foreign requirement need not stand alone: "FMS requirements may be consolidated with USG requirements or placed on separate contract whichever is more expedient and cost effective."
A foreign customer is not a bystander. The supplement encourages implementing agencies to involve customers with acquisition personnel in discussions with industry, to "develop technical specifications", "establish delivery schedules", identify special warranty provisions, and "review prices of varying alternatives, quantities, and options needed to make price-performance tradeoffs" (DFARS 225.7304(b)).
The same section then draws firm limits. Representatives of the customer are not permitted to "direct the exclusion of certain firms from the solicitation process", to "interfere with a contractor's placement of subcontracts", or to "observe or participate in negotiations between the U.S. Government and the contractor" (DFARS 225.7304(e)). The section adds that the customer may suggest the inclusion of certain firms.
A customer may also ask for a named supplier. Where it does, the manual records that "FMS customers need not provide a rationale for the request" (SAMM C6.3.4), and the supplement points to FAR 6.302-4 as the authority to contract without full and open competition in that situation.
Offsets sit outside the contract entirely, and the supplement is explicit about who owns them. It defines an offset agreement as "the contractual arrangement between the FMS customer and the U.S. defense contractor that identifies the offset obligation", and states that "the U.S. Government assumes no obligation to satisfy or administer the offset agreement or to bear any of the associated costs" (DFARS 225.7303-2(a)(3)). A supplier carrying an offset commitment carries it alone.
Every country with a programme has a security cooperation office, and the manual designates it as the point of contact for industry. It states that the office, "rather than the Commercial Attaché, is the principal point of contact (POC) in U.S. missions for most U.S. defense industry representatives marketing defense equipment" (SAMM C2.1.8.1).
The same section sets the boundary. Those offices "support the marketing efforts of U.S. companies while maintaining strict neutrality between U.S. competitors", facilitating the flow of information "while avoiding advocacy of a program with a specific U.S. producer". A company expecting advocacy is expecting something the manual forbids.
The programme charges for its own administration, and the statute requires it. The manual states that costs of administering the programme "must always be paid and/or collected", citing section 21(e)(1) of the Act (SAMM C9.6.1).
The rate is published. The table of charges states an administrative surcharge of "3.2 percent for both standard and nonstandard articles/services (for LOA lines implemented on or after June 1, 2018)", the previous rate having been 3.5 percent from 1 November 2012 (SAMM Table C9.T4). The same table records that the surcharge does not apply to programme management lines, small case management lines, or grant lines for excess defense articles.
It is charged as a percentage of applicable line items and shown on the agreement as a below the line charge. A partner comparing an FMS price with a commercial quotation is therefore not comparing like with like unless the administration is priced into both.
| Implementing agency | The military department organisation or defence agency that runs a case. SAMM C1.3.2.6. |
|---|---|
| Case manager | The individual assigned to each agreement to guide development and execution. SAMM C2.2.1. |
| SCO | Security Cooperation Organization, the in country office that is the industry point of contact. SAMM C2.1.8.1. |
| FMS administrative surcharge | The charge recovering the cost of administering the programme. SAMM Table C9.T4. |
| DFARS 225.73 | The supplement subpart governing acquisitions for Foreign Military Sales. |
This note describes public United States government programmes for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.
Suppliers delivering into difficult environments need the movement, protection and accommodation around the contract to work. Sentfore's current services cover protective security, armored transport and secure movement, secure facilities and life support, technology and sensor integration, and contingency and expeditionary operations. Sentfore's principals have worked on overseas defense and security programmes in the regions where these requirements arise. Enquiries can be sent through the contact page.
Sentfore, LLC is a United States company based in McLean, Virginia. It provides protective security, armored transport and secure movement, secure facilities and life support, technology and sensor integration, contingency and expeditionary operations, and ISR advisory services for government, defense and commercial organisations operating in complex environments. Contact the team.