Line Level Financial Review · 3 of 3
Sharing cost, and paying under assessment
In short
- Each partner signs its own agreement for its own share.
- A partner cancelling stays liable for costs incurred to that point.
- An assessed schedule can be revoked, restoring cash with acceptance.
1. Two departures from one buyer paying cash
The ordinary picture is one government funding one agreement. Two arrangements depart from it in opposite directions. In one, several partners fund the same article between them. In the other, a partner whose finances do not support the normal terms is given a structured way to pay.
Both change what a supplier can assume about the money. The standard terms they sit beside are in terms of sale and the dependable undertaking.
2. What a cost sharing arrangement is
The purpose is stated plainly. Several partners, sometimes including the United States, jointly fund the development and procurement of common articles, spreading the burden and distributing cost (SAMM C9.4.10).
The trigger is demand rather than policy. "Cost-sharing arrangements are used when more than one partner requests the same defense article or service, and the partners agree to fund a portion of the costs at a pro rata share" (SAMM C9.4.10).
There is no joint contract here. "Each partner will use a signed and implemented LOA to fund its portion of the costs" (SAMM C9.4.10.1), and the shared item is kept visible within each one: "The cost-shared defense article or service will be a standalone line within an FMS case" (SAMM C9.4.10.1). A named case note marks the arrangement on the document.
This differs from the models where one buyer signs for a group, covered in when one nation buys for several. Here each partner holds its own agreement and obligation.
3. How the share is worked out
The starting figures come from the financial regulation rather than from negotiation. "The IA will determine the initial shared costs in accordance with the DoD FMR, Volume 15, Chapter 7" (SAMM C9.4.10.2). The case manager reviews the methodology and the per partner breakdown with the budget financial manager, and each partner is charged on its pro rata share of the article sold (SAMM C9.4.10.2.1).
4. When the cost moves, or the group does
Cost increases are not absorbed. Where total program costs rise beyond the estimate used for each share, every agreement must fund its portion, and the agency sets a timeline for amending (SAMM C9.4.10.2.2). The mechanism is compulsory: "Implemented LOAs that do not have sufficient funds must be increased through LOA amendments" (SAMM C9.4.10.2.2).
Reductions are handled less rigidly. The percentage cut is applied proportionally to each share, and the agency either refunds or adjusts future payments (SAMM C9.4.10.2.3). One direction is a firm funding requirement; the other is a choice of remedy.
Departure is the interesting case here. "In the event a partner that is a contributor to a cost-sharing arrangement chooses to cancel its LOA, the partner is responsible for any costs incurred at the point of cancellation" (SAMM C9.4.10.2.4). The agency then reduces that agreement to the highest financial requirement and reallocates the remaining cost across those who stay.
So a partner leaving makes the program dearer for everyone else, through amendments to their own agreements: "Increases to the LOA will be accomplished through an LOA amendment" (SAMM C9.4.10.2.4). Joiners trigger a fresh allocation, and agencies are told to weigh whether adding one is appropriate given the development time and funding left (SAMM C9.4.10.2.4).
5. A term of sale for a partner on the edge
Risk assessed payment schedules sit between those positions. The manual calls them an alternative to the cash with acceptance standard for partners otherwise ineligible for the deferred term, offering a way to build a payment history while protecting the government against non payment (SAMM C9.8.4). The abbreviation for that deferred term is never expanded in the section.
Eligibility is not automatic and not permanent. "DSCA will evaluate and grant the FMS Partner's eligibility at case or country level with the existing three tier DU evaluation process" (SAMM C9.8.4). Approval can therefore attach to a single case rather than to the relationship.
6. What the evaluation looks at
One office runs it. "DSCA (OBO/FPRE) will determine Partner eligibility using the established Three Tier Evaluation process" (SAMM C9.8.4.1). The named factors are the credit risk rating, program and payment history, the value of the planned procurement, and any debt relief history (SAMM C9.8.4.1).
A request may come from the embassy office, the implementing agency or the partner, routed through named country roles (SAMM C9.8.4.2). "Each RAPS request needs to include many of the same documents required for a standard DU second and third tier assessment" (SAMM C9.8.4.2).
The published list of five is revealing. A program history form and five to seven years of quarterly national fund payment history establish the record, and that history excludes grant money. The country team assessment and a combatant command endorsement must each address the ability to pay and budget. A weighted assessment form is completed last (SAMM Table C9.T15).
The decision goes higher than the evaluation. "DSCA (OBO/FPRE) will conduct the evaluation, in coordination with the DSCA (IOPS), and will make a recommendation to the DSCA CFO for approval or non-approval" (SAMM C9.8.4.3).
7. The two schedules, and losing them
Approval produces one of two set formats. "If approved by the DSCA CFO, the authorization memo will prescribe one of two available payment schedule formats" (SAMM C9.8.4.4).
The lighter one is anchored to cancellation exposure. For partners requiring minimal risk mitigation, "the payment schedule will require an initial deposit, including 100 percent of the highest projected termination liability (TL) for the case, followed by quarterly payments required one year in advance of financial requirements" (SAMM C9.8.4.4.1).
The heavier one is anchored to case value instead. It requires a deposit of at least 50 percent of total case value, which must also cover the full projected termination liability, with payments again a year in advance (SAMM C9.8.4.4.2). The two use different bases, not two points on one scale. The sentence setting out the heavier format is ungrammatical as published, reading that the deposit must be sufficient to also covers the liability.
Performance is then watched payment by payment. The finance service notifies the regional division each time a payment is made, and "This is a positive reporting requirement that will ensure the FMS Purchaser is making full and timely payments" (SAMM C9.8.4.5). A missed payment opens a dialogue with the embassy office and the partner under the arrears procedures (SAMM C9.8.4.5.1).
Failure has two tiers. "In the event of incomplete or untimely payments, DSCA may revoke the RAPS status and request Cash with Acceptance on future LOA documents" (SAMM C9.8.4.6). Where the partner cannot support the case at all, the division works out whether to reduce its scope or shut it down. The listed remedies run as far as diplomatic channels and referral to the justice department (SAMM C9.8.4.6).
8. What a supplier can take from this
On a shared program the funding is only as firm as the smallest participant. One partner cancelling does not reduce the work. It redistributes the cost through amendments, each of which has to be signed before the money is there.
Where a structured schedule is in place, the buyer has been assessed as a credit risk and pays a year ahead of requirement. Funds are usually there when needed, but a missed payment is visible at once and can move the partner back to cash on acceptance, which is where a program quietly stalls.
Key terms
| Cost sharing arrangement | Several partners funding one article through separate agreements at a pro rata share. |
|---|---|
| Pro rata share | The proportional basis on which each partner is charged, recalculated when the group changes. |
| Risk assessed payment schedule | A term of sale for a partner that does not qualify for deferred payment terms. |
| Termination liability | The cancellation exposure that sets the deposit under the lighter of the two schedules. |
Every statement above links to the document behind it. The full source list for this piece is on the sources page.
This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.
How Sentfore supports this
Funding that depends on several partners or on an assessed payer is funding that can move. Sentfore provides secure movement, protective security, facilities and life support for defense programs once equipment and people are in country. Requirements can be sent through the contact page.