Pricing, Payment and Billing · 1 of 3
Every case document carries a term of sale. It settles one thing: when the partner's money has to be in the account relative to when the United States has to spend it. The manual lists thirteen of them, from cash with acceptance through to the two structured schedules described below.
The default position is the conservative one. Cash with acceptance applies where the initial deposit equals the estimated total costs shown on the offer, and the manual reaches it by exclusion. The entry reads: "Used if the purchaser is not authorized DU, unless specific DSCA approval is obtained" (SAMM Table C9.T11).
Everything else in this area is, in effect, a departure from paying the whole amount up front.
The instrument that permits payment over time is a promise, not a security. The manual defines it plainly: "DU represents a firm commitment by the purchaser to pay the full amount of the contract, which assures the USG against any loss on the contract" (SAMM C9.8.3.1).
The content of that promise is specific about timing. The purchaser "agrees to make funds available, in advance of financial requirements, as required by the official USG billing statement, to meet payments to contractors as well as any damages and costs that may accrue from cancellation" (SAMM C9.8.3.1).
Two elements of that are easy to miss. Funds go in ahead of the requirement, not alongside it. And the commitment extends to cancellation costs, which is why termination liability drives the payment schedule rather than delivery value.
The authority is statutory, resting on the sections of the Arms Export Control Act dealing with procurement for sale and with payment terms (SAMM C9.8.3.1).
Eligibility begins with a credit rating produced outside the program. "A country with an acceptable ICRAS rating at the time of receipt of the Letter of Request (LOR) is presumed to be eligible to use the DU Term of Sale unless other factors override that eligibility determination" (SAMM C9.8.3.2).
Where the presumption does not apply, a three tier assessment follows. The first tier is the rating itself, described as marking "the point of reasonable assurance that the country will be able to resolve payment problems without resorting to a U.S. Taxpayer funded appropriation". The second is a weighted score, where "A score of 5 or higher is eligible for a positive recommendation". The third looks at the historical record of payments from national funds (SAMM Table C9.T12).
Eligibility can also lapse through disuse. The manual defines the trigger precisely: "For this purpose, a period of inactivity means no record of national fund payments for seven consecutive years" (SAMM C9.8.3.3.2).
And it can be withdrawn for cause. "In the event of incomplete and/or untimely payments resulting in abnormal account balances or an Anti-Deficiency like situation, the DSCA Director may revoke the DU status and request Cash with Acceptance on current and/or future LOA documents" (SAMM C9.8.3.6).
Above the plain undertaking sit two named schedules, each approved case by case.
The first is built around risk. It "allows eligible partners to use payment schedules following an initial deposit of either maximum termination liability or 50 percent of Total Case Value (TCV)" (SAMM Table C9.T11). Which of the two applies depends on the assessed risk, and payments then run a year in advance of requirements.
The second substitutes a bank for a deposit. It "offers FMS partners a mechanism to establish a positive payment history for future LOAs and mitigates risk to the USG against non-payment while allowing partners to avoid paying for 100 percent of a FMS case upon LOA acceptance" (SAMM C9.8.5).
The security has a defined size. "The value of the SBLC must be the greater of either 1) the sum of the three largest remaining payments, or 2) 50 percent of the remaining case balance of all applicable implemented and proposed FMS LOAs, including their Modifications, and Amendments that align with the CAPS Term of Sale" (SAMM C9.8.5.2).
Both are approvals rather than entitlements, and the manual records the first as approved by the agency's chief financial officer on a case-by-case basis.
These are staffed decisions with a documentary record behind them. The manual sets out the papers required for a final evaluation, and a separate table allocating roles across the offices involved (SAMM Tables C9.T13 and C9.T14).
Payment behavior is also watched after the decision. The manual provides for review of payment timeliness at least quarterly, and not less than annually, which is what makes the revocation power above more than theoretical.
Where a letter of credit secures the schedule, the issuing or confirming bank has to meet stated credit ratings, and the amount is revisited as the case runs. An increase gives the purchaser ten business days to reply and the bank fifteen. A reduction is recommended where the computed termination liability sits more than ten percent below the letter for two consecutive quarters, and the purchaser then has thirty calendar days to respond (SAMM C9.9.1.5.4).
Those intervals are worth noting because they are the mechanism by which a case that is running under budget releases security back to the partner. Nothing happens automatically.
The term of sale is settled before the payment schedule exists, and it determines whether there can be one at all. A partner that is not eligible for the undertaking pays the estimated total cost on acceptance, whatever the delivery schedule says.
For a supplier, that has a direct consequence. A long production run for a partner paying cash on acceptance is funded differently from the same run for a partner on a schedule, and the case will not be offered until that question is closed. How the schedule is then built and billed is set out in payment schedules and billing.
| DU | Dependable undertaking, a firm commitment to pay the full contract amount in advance of requirements. SAMM C9.8.3.1. |
|---|---|
| ICRAS | The interagency country risk assessment rating on which eligibility is presumed. |
| RAPS | Risk assessed payment schedule, opened by a deposit of maximum termination liability or half the case value. |
| CAPS | Credit assured payment schedule, secured by a standby letter of credit. |
| SBLC | The standby letter of credit, sized as the greater of three largest payments or half the remaining balance. |
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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