Section 30 sales and construction services

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1. Two less familiar kinds of sale

The Letter of Offer and Acceptance (LOA) is the government’s legal instrument for sales to a foreign country or international organization (SAMM C5.6.1). Two provisions of the Arms Export Control Act cover less familiar sales. Section 30 lets the government sell to an American company that is building something for a foreign buyer (22 U.S.C. 2770(a)). Section 29 lets it sell design and construction services to a foreign country or international organization (22 U.S.C. 2769).

2. Section 30: selling to an American company

Under section 30, the President may sell defense articles to a United States company on a negotiated contract basis, under cash terms (22 U.S.C. 2770(a)). The articles are for incorporation into end items, with concurrent or follow-on support, that the company will sell to a friendly foreign country or international organization. The sale must be on a direct commercial basis under an export license or approval. Stock is sold at not less than estimated replacement cost, and services at not less than actual cost. Articles procured or manufactured for the purpose are sold at not less than their contract or manufacturing cost to the government.

Defense services may be sold in support of those articles, with one limit written into the statute: "such services may be performed only in the United States" (22 U.S.C. 2770(a)). Reimbursement is credited to the current appropriation, fund or account of the selling agency.

Three conditions must all be met (22 U.S.C. 2770(b)). The end item must be procured for the armed forces of a friendly country or international organization. The articles must be the kind that would be supplied to the prime contractor as government-furnished equipment or material if the end item were being bought for American forces. And the articles and services must be available only from government sources, or not available to the prime contractor from American commercial sources in time to meet its delivery schedule.

For this section, the terms defense articles and defense services carry the meanings given in the Act’s general definitions (22 U.S.C. 2770(c)).

3. What the manual asks of industry

The Security Assistance Management Manual places section 30 within Defense Department support to direct commercial sales (SAMM C4.3.13). American industry may ask the Department for defense articles and services to support a direct commercial sale. Any such support must rest on an applicable statutory authority, including section 30.

The manual’s practical advice is about timing. "It is important that defense industry representatives identify early in the DCS planning process whether support from the DoD will be required" (SAMM C4.3.13). DCS means direct commercial sale. If support is needed, meetings with Department representatives should be arranged to agree the level of support and how its costs will be funded. The broader choice between the two sales routes is covered in Foreign Military Sales or Direct Commercial Sales.

4. Section 29: design and construction services

The President may sell design and construction services to an eligible foreign country or international organization. The buyer must agree to pay, in dollars, not less than the full cost to the government (22 U.S.C. 2769). Payment is made in advance of the work done by government officers or employees.

The government may also contract with private firms for design and construction services to be sold. It may do so without charge to any appropriation if the buyer gives a dependable undertaking (22 U.S.C. 2769). The buyer must undertake to pay the full contract amount so the government bears no loss. It must also make funds available when needed to meet contract payments and any damages and costs from cancellation, before they fall due. The Financial Management Regulation restates that the buyer pays the full cost of these services and any cancellation damages and costs (FMR Vol. 15, Ch. 7, para. 3.1.4).

5. How construction is managed

Design and construction services are offered under normal Foreign Military Sales procedures (SAMM C4.4.7.1). Management and oversight belong to construction agents designated under the governing Defense Department directive. When construction is part of a larger program, it can be provided in two ways. It may sit on the total package LOA under the managing implementing agency, with a separate line for the construction agent, or on a separate LOA run by the construction agent.

The U.S. Army Corps of Engineers is responsible for construction cases where the directive designates it as construction agent (SAMM C4.4.7.2). For other construction cases, the implementing agency provides the services through its own designated construction agent. The two then conclude an internal agreement that sets out management of the construction and their program management relationship.

6. Contracts that can be stopped

Contracts under both sections carry a statutory cancellation clause. Each contract for sale under sections 29 and 30, as under sections 21 and 22, must provide for cancellation or suspension. The United States may cancel it in whole or in part, or suspend it, at any time under unusual or compelling circumstances if the national interest requires (22 U.S.C. 2791(e)(1)). The statute authorizes appropriations to refund money already disbursed for work in progress on a canceled or suspended contract, and to pay the resulting damages and costs (22 U.S.C. 2791(e)(3)).

Responsibility inside the government is also set by statute. Under the President’s direction, the Secretary of Defense has primary responsibility for sales under sections 29 and 30 in several areas (22 U.S.C. 2791(d)(1)). They include determining military end-item requirements, procuring equipment so it fits with service programs, and moving and delivering military end items.

Key terms

Section 30 sale	A sale of defense articles or services to an American company for incorporation into end items sold commercially abroad.
Direct commercial sale (DCS)	A sale by a company to a foreign buyer under an export license, outside a government-to-government case.
Design and construction services	Services sold under section 29, at full cost, paid in advance or under a dependable undertaking.
Construction agent	The organization designated to manage and oversee construction on a case, such as the Army Corps of Engineers.
Dependable undertaking	A buyer’s commitment to pay the full contract amount and fund payments before they fall due.

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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