Paying for work before a case exists

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1. Two kinds of early work

Before an offer exists, an implementing agency (IA) often spends real effort helping a partner, and the Security Assistance Management Manual (SAMM) separates that effort into two phases (SAMM C9.3.4). Pre-request activities help the purchaser define its requirement in enough detail to produce a complete Letter of Request (LOR). A complete request holds everything the IA needs to develop a Letter of Offer and Acceptance (LOA). Pre-request work includes research and analysis, meetings and briefings, answers to requests for proposals, international competitions, equipment demonstrations and the related travel.

Case development follows once the request is complete (SAMM C9.3.4). It is the work needed to prepare offer-quality data, and it ends when the purchaser signs the offer. How a partner prepares its request is covered in before a Letter of Request. This piece covers who pays for the government’s side of that work.

2. Execution comes first

IAs must make prudent choices when spending Foreign Military Sales (FMS) administrative surcharge funds, and in budgeting them the priority should go to supporting case execution (SAMM C9.3.4.1). A hard cap follows. No more than eight percent of the surcharge funds allocated to an IA in a fiscal year may be spent on pre-request activities (SAMM C9.3.4.2). Going over the cap needs approval from the Director of the Defense Security Cooperation Agency (DSCA). The request for that exception must account for funds spent and remaining, and set out priorities for the rest of the year.

3. When DSCA must be told

IAs tell DSCA’s business operations and policy offices about planned pre-request and case development work through the annual program and budget process (SAMM C9.3.4.3). After that, two events require a further notice. The first is any change to the budget information that would add new or increased cost above one percent of the IA’s approved pre-request budget (SAMM C9.3.4.3.1). The second is case development spending on a potential case, or a group of closely related cases, expected to exceed $1 million (SAMM C9.3.4.3.2).

The thresholds count everything, including civilian pay, contracts and travel (SAMM C9.3.4.4). A notification should include an analysis of the IA’s ability to fund other pre-request and case development work for the rest of the fiscal year, and the manual provides a memo template. DSCA replies within ten working days if it needs more information or clarification (SAMM C9.3.4.5). Where IAs run out of surcharge money, the manual allows appropriated operating funds to be used on an exceptional basis under section 43(a) of the Arms Export Control Act (SAMM C9.3.4.6). Operating funds used this way must not subsidize the foreign customer, and surcharge or case funds that become available later may reimburse them. That route is covered in procurement surveys and administrative expenses.

4. Equipment the Defense Department does not use

A non-program of record (NPOR) item is a non-standard capability or system the Defense Department has not formally adopted, fielded or funded (SAMM C9.3.4.7). Pre-request work for such items is funded as the manual’s activity matrix specifies, and current-year surcharge allocations may be used for case development. Once the offer is implemented, the IA should seek reimbursement of documented NPOR-unique expenses to the surcharge account as far as feasible. If no offer is developed or implemented, the pre-request funds first used remain the right source.

The matrix governs which activities count as pre-request work for these items and how each is funded (SAMM C9.3.4.7.1). Partner money is preferred for developing such cases (SAMM C9.3.4.7). The manual points to an analysis and studies case or a technical assistance case funded by the partner, instead of the surcharge account. Work such as design, engineering and cost estimating may be funded either by the surcharge account or by an offer (SAMM C9.3.4.7.2). If the surcharge account pays, the later case must reimburse it. A dedicated studies or technical support offer can be created where the partner has no active case to use. In setting the cost of such an offer, the IA weighs the purchaser’s request, the complexity of the work and the forecast resources needed. The manual’s preferred method is to fund case development up front on a case, so no reimbursement is needed later.

Two further rules close the loop. Any surcharge money spent on NPOR-unique case development must be repaid once the case is implemented, and the repayment goes in the case’s initial deposit (SAMM C9.3.4.7.2.1). Where more money is still needed, the IA may file an out-of-cycle request for surcharge funds as an unfunded requirement (SAMM C9.3.4.7). It must detail every activity that needs funding and show that all other avenues have been pursued.

5. Refunding the surcharge account

In specific cases, surcharge funds may pay first for a service, such as a site survey, and the case repays the account once it is signed or implemented (SAMM C9.3.11). The manual sets out the process. The IA must have a way to identify every disbursement voucher citing surcharge funds that will need a refund from the case later (SAMM C9.3.11.1).

When the case is implemented, the earlier disbursements move from the surcharge fund cite to the case fund cite (SAMM C9.3.11.2). A journal voucher or a Standard Form 1081, Voucher and Schedule of Withdrawals and Credits, may be used. The transfer voucher must reference the earlier disbursement vouchers being refunded (SAMM C9.3.11.3). That supports certification and leaves an audit trail back to the original obligation and payment.

Timing decides where the money ends up (SAMM C9.3.11.4). A refund posted against current-year surcharge budget authority makes the funds available for obligation again once it posts. A refund posted against prior-year budget authority frees excess budget authority, and that goes back to DSCA.

Key terms

Pre-request activities	Work that helps a partner define a requirement well enough for a complete request.
Case development	Work to prepare offer-quality data, ending when the purchaser signs.
Eight percent cap	The limit on an agency’s yearly surcharge funds spent on pre-request work.
Non-program of record	A non-standard system the Defense Department has not adopted, fielded or funded.
SF 1081	A voucher that may be used to move earlier payments from the surcharge account to a case.

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.

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