Pricing storage, repair, facilities and publications

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1. Charges beyond the article

Not every charge on a Foreign Military Sales case is for an article or a contract. Chapter 7 of Volume 15 of the Financial Management Regulation also prices storage of equipment the buyer already owns, repair and modification, the use of Defense Department facilities, and publications (FMR Vol. 15, Ch. 7, para. 9.0, FMR Vol. 15, Ch. 7, para. 10.0 and FMR Vol. 15, Ch. 7, para. 19.0). This piece takes those rules in turn. How personnel time is priced is covered in how personnel services are priced.

2. Storing what the buyer owns

Storage costs include receiving, care and preservation, set assembly and related work, plus overhead such as re-warehousing, physical inventories and cleaning (FMR Vol. 15, Ch. 7, para. 9.1.1). Storage charges apply in three situations (FMR Vol. 15, Ch. 7, para. 9.1.2). The first is the on-hand portion of supply support cases for items outside the working capital fund. The second is a case where the Department is ready to deliver but the purchaser has asked to delay. The third is a case the Department cannot deliver because of legal or policy restrictions.

Charges start 15 days after the date of availability (FMR Vol. 15, Ch. 7, para. 9.1.3). The uniform annual rate is 1.5 percent of the average monthly value of the stored material, which the regulation also states as 0.125 percent, unless a separate charge is negotiated with the storage facility (FMR Vol. 15, Ch. 7, para. 9.1.4). Storage costs should appear on a separate line of the Letter of Offer and Acceptance (LOA), which can be added by modification if it does not already exist (FMR Vol. 15, Ch. 7, para. 9.1.5).

3. Repair and modification

When a foreign government asks for repair or modification by an activity outside the working capital fund, the work is priced on a job order basis or through contract procurement (FMR Vol. 15, Ch. 7, para. 9.2.1). Labor follows the personnel pricing rules, stock materials follow the rules for sales from stock, and materials bought from contractors follow the rules for new procurement (FMR Vol. 15, Ch. 7, para. 9.2.2, FMR Vol. 15, Ch. 7, para. 9.2.3 and FMR Vol. 15, Ch. 7, para. 9.2.4).

The purchaser pays transportation both ways for equipment processed by a repair or overhaul facility (FMR Vol. 15, Ch. 7, para. 9.2.7). If the facility ships the repaired item, the cost is charged to the case. The administrative surcharge applies to all direct and indirect costs billed for storage, repair or modification (FMR Vol. 15, Ch. 7, para. 9.3). Working capital fund activities charge the Department’s approved stabilized rates and prices, adjusted for unfunded civilian retirement and post-retirement health costs (FMR Vol. 15, Ch. 7, para. 9.4).

4. Facilities, laboratories and shared space

Construction or expansion that a foreign government wants for its own exclusive use is financed and funded by that government (FMR Vol. 15, Ch. 7, para. 10.0). Expansion needed for Department use, even if also available for sales, is funded through the normal defense budget. A proportionate share of operating costs is also reimbursed (FMR Vol. 15, Ch. 7, para. 10.1).

Case and line managers must tell performing activities when work at a Department test facility or laboratory involves a sale (FMR Vol. 15, Ch. 7, para. 10.2). The work is priced for full reimbursement of direct, indirect and overhead costs. Embedded computer software support is normally supplied through a services case or line, and the Department owns and operates the facility whatever the purchaser pays toward it (FMR Vol. 15, Ch. 7, para. 10.3.1). The purchaser pays a prorated share of total software support costs (FMR Vol. 15, Ch. 7, para. 10.3.2).

Jointly used facilities are charged pro rata (FMR Vol. 15, Ch. 7, para. 11.0). For shared office or storage space, the share rests on the space assigned to the foreign government against the total space available (FMR Vol. 15, Ch. 7, para. 11.1.1). Operating costs include upkeep of the facilities and access roads, security, communications and utilities, and rent where the United States must pay it under a lease (FMR Vol. 15, Ch. 7, para. 11.1.2). For shared satellites, launch cost is allocated by pre-launch negotiation on expected benefits, and recurring costs by actual time of use (FMR Vol. 15, Ch. 7, para. 11.2).

5. Publications and software

A standard Defense Department publication is generally priced at the incremental cost of producing another copy (FMR Vol. 15, Ch. 7, para. 19.0). Since October 1, 2004, acquisition and development costs have been excluded from that price. The term is broad. It covers technical orders and manuals, supply catalogs, training publications and courseware, engineering drawings, forms, decals and audio-visual products (FMR Vol. 15, Ch. 7, para. 19.1.1).

Material developed solely for a purchaser is treated differently. It is priced to recover the total cost of developing and delivering it, including writing, editing, illustrating, documentation and royalty fees for intellectual property (FMR Vol. 15, Ch. 7, para. 19.2.1). Sanitizing a standard publication for release, by removing information that cannot be released, is a recoverable cost (FMR Vol. 15, Ch. 7, para. 19.2.3). Engineering drawings are reviewed to decide whether a technology charge applies (FMR Vol. 15, Ch. 7, para. 19.1.3).

The per copy price is the total incremental cost divided by the quantity produced (FMR Vol. 15, Ch. 7, para. 19.3.1). Actual costs are used when available, and otherwise a factored expression of historical costs (FMR Vol. 15, Ch. 7, para. 19.3.2). Nonrecurring cost recoupment does not normally apply to publications or software, unless the item is major defense equipment (FMR Vol. 15, Ch. 7, para. 19.4.1). Administrative and accessorial charges are added as a percentage, outside the per copy price (FMR Vol. 15, Ch. 7, para. 19.4.2).

6. New rates need approval

Rates used to recover accessorial costs and surcharges are reviewed periodically (FMR Vol. 15, Ch. 7, para. 12.1). No charge, and no percentage surcharge, may be made to recover any cost unless Volume 15 expressly prescribes it, or the Comptroller’s office approves it in writing (FMR Vol. 15, Ch. 7, para. 12.2). A component that believes a rate should change sends its request, with supporting data, through its senior financial manager and the Defense Security Cooperation Agency.

Key terms

Purchaser-owned material	Equipment belonging to the buyer and held in Department storage, charged at a uniform annual rate.
Job order basis	The pricing of repair or modification by the actual or estimated cost of the job.
Pro rata share	The buyer’s portion of operating costs on a jointly used facility, by space or by time.
Sanitization	Removing information that cannot be released from a publication or program before it goes to a foreign government.
Per copy selling price	Total incremental cost of a publication divided by the quantity produced.

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

Stored and repaired equipment eventually moves again, and it needs secure handling when it does. 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.