Defense Services Agreements · 3 of 3
Offshore procurement, warehousing and space systems
In short
- The exemptions in section 125.4 cannot be used to set up offshore procurement.
- Distributors may sell only to governments in the territory and their contractors.
- No exemption may be used to send technical data to insurers or underwriters.
1. Three arrangements with their own rules
Most agreements for defense services follow the general pattern of approval, filing and notice described in what a defense services agreement is. Three arrangements have special rules. Offshore procurement sends drawings abroad so a foreign firm can make parts for an American buyer. Warehousing and distribution places stock abroad for resale. Satellite and launch work is subject to monitoring that no other category of export carries.
2. Offshore procurement
An American company that wants a foreign supplier to manufacture defense articles for it can do so under a license, Form DSP-5, for the export of unclassified technical data. The authority sits outside the ordinary agreement process, and the conditions are specific (22 CFR 124.13). Delivery of what is produced must be limited to the American company or a government agency. The technical data may not exceed what is required for bid purposes on a build-to-print basis.
The contract with the foreign supplier must lock the data down. It must limit use of the data to making the articles ordered and forbid disclosure to anyone except subcontractors in the same country. It must forbid any foreign person from acquiring rights in the data, and pass the same limits down to any subcontract. The data must be destroyed or returned when the contract is fulfilled (22 CFR 124.13(c)).
The Directorate of Defense Trade Controls sees every order. The American company provides a copy of each contract, purchase order or subcontract when it is accepted, identifying the article and the license or exemption used (22 CFR 124.13(d)). Licenses must be renewed before they expire if the arrangement continues, and must state their purpose as offshore procurement under the regulation’s conditions.
Where the data is otherwise exempt from licensing, the license itself is not required. The other conditions still apply, and the exporter certifies its offshore procurement activity to the Directorate every year. One route is closed: "The exemptions under § 125.4 of this subchapter may not be used to establish offshore procurement arrangements" (22 CFR 124.13(e)).
3. Warehousing and distribution agreements
Stock held abroad for resale needs an approved agreement before any contract with the foreign distributor enters into force. "Such agreements will be limited to unclassified defense articles and must contain conditions for special distribution, end-use and reporting" (22 CFR 124.14(a)). Exports under the agreement still need licenses unless the exemption for hardware under an approved agreement applies.
The agreement must describe the articles precisely, including test and support equipment, and only articles listed in it are eligible for that exemption. It must set out the terms of export and distribution, and its duration. It must also identify the countries that make up the distribution territory (22 CFR 124.14(b)).
Distribution is limited to the governments of those countries, private entities buying under a contract with one of those governments, or other eligible entities the Directorate specifies. Any departure from that limit must be fully explained and justified (22 CFR 124.14(b)(4)). A standard clause applies the same limit unless the articles are genuinely meant for private buyers, such as cryptographic products for financial and business use (22 CFR 124.14(c)(9)).
The agreement carries the same government clauses as a license agreement, including prior approval for transfers outside the territory and an annual report of sales by quantity, type, dollar value and recipient. The Department of State treats those reports as proprietary and does not disclose them to unauthorized persons (22 CFR 124.14(c)(6)). For significant military equipment, a nontransfer and use certificate is required before any transfer (22 CFR 124.14(d)). The request is made by letter, which must state that no classified articles or data are involved (22 CFR 124.14(e)).
4. Satellites and launches
Category XV of the list, covering space systems, carries special controls for exports connected with a launch in, or by nationals of, a country that is not a NATO member or a major non-NATO ally. In those cases the controls apply always, in addition to everything else in the regulations (22 CFR 124.15(a)).
Two plans are required: a technology transfer control plan approved by the Department of Defense, and an encryption technology control plan approved by the National Security Agency. Drafts reflecting advance discussions with both must accompany the application. The transfer plan must require notice to the Defense Department in advance of all meetings with foreign parties, and a certification of compliance within 30 days after launch (22 CFR 124.15(a)(1)).
The Defense Department also monitors the work, from technical discussions through launch preparation, integration, testing, launch and the return of equipment. The company pays for it. "The costs of such monitoring services must be fully reimbursed to the Department of Defense by the U.S. person receiving such services" (22 CFR 124.15(a)(2)).
Failures are covered too. If a launch from a foreign country fails, American participation in any investigation remains subject to export control and needs express approval, even if no license was issued for the original export. Defense officials monitor the investigation (22 CFR 124.15(b)). No exemption or sub-licensing provision may be used to export technical data to insurers or underwriters (22 CFR 124.15(d)). The same special controls may be applied to launches by allies, or to any other export, where security and foreign policy call for it (22 CFR 124.15(c)).
5. What this means for a supplier
Each arrangement trades flexibility for control. Offshore procurement works only if every order is reported and the data comes back at the end. A foreign distributor can hold stock, but only for a defined territory and customer base, with annual reporting. Space work adds plans, notices and monitoring at the company’s own cost. The general rules on filing and ending agreements are in filing and ending a defense services agreement.
Key terms
| Offshore procurement | Using a licensed export of technical data so a foreign firm can make defense articles for an American buyer. |
|---|---|
| Build-to-print | Production from drawings alone, the most technical data an offshore procurement license allows. |
| Distribution territory | The countries named in a warehousing and distribution agreement, within which resale is allowed. |
| Technology transfer control plan | A Defense Department approved plan required for certain satellite and launch exports. |
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
Stock held abroad and equipment awaiting launch both need secure storage and controlled access. Sentfore works at the delivery end of defense programs in difficult environments, providing secure movement, protective security, facilities and life support. Requirements can be sent through the contact page.