Pricing, Payment and Billing · 3 of 3
What a partner pays is not what the item costs the United States. Several charges are added, and the manual keeps them in one table, with a warning about its own completeness: "Table C9.T4. is a list of charges used in Foreign Military Sales (FMS) pricing. This list is not all-inclusive" (SAMM C9.5.1).
Four of those charges account for most of the difference on an ordinary case. They are the administrative surcharge, contract administration services, packing, crating and handling, and transportation.
This is the charge that funds the running of the program itself. The current figure is "3.2 percent for both standard and nonstandard articles/services (for LOA lines implemented on or after June 1, 2018)" (SAMM Table C9.T4).
The date in that entry is not decoration. The rate has changed repeatedly, and a case implemented under an earlier rate keeps it. Any figure quoted without its effective date is unreliable.
The charge is close to unavoidable. The manual opens the waiver section by stating the statutory position: costs of administering the program "must always be paid and/or collected" under the Arms Export Control Act (SAMM C9.6.1). Waiver therefore moves the cost rather than removing it, and the manual says so: "If a waiver of the FMS Administrative Surcharge for the purchaser is approved in one of the circumstances described below, it must still be recouped from another funding source" (SAMM C9.6.1).
The route that exists is therefore an internal one. An implementing agency may waive or reduce the surcharge where it obligates its own operation and maintenance appropriations to pay the difference into the surcharge account (SAMM C9.6.1.1).
Contract administration services are billed as three separate components. They are currently 0.45 percent for quality assurance and inspection, 0.45 percent for contract administration management and 0.10 percent for contract audit. A further 0.20 percent applies where the work is performed outside the United States (SAMM Table C9.T4).
Those components do not all apply everywhere. Engineering and construction lines run by the Army engineers carry only the contract audit component, because quality assurance and administration are already covered by that organization's own supervision costs. A separate track applies to certain Air Force design and construction lines, and one program carries no such components at all.
Waiver here is treaty business rather than case business. The statute allows these services to be provided without charge to governments holding reciprocal agreements. The manual lists the countries, the organizations and the alliance agreements, with their effective dates and the specific cost each waives (SAMM C9.6.2). A partner either has such an agreement or does not.
Packing, crating and handling is charged at a flat rate on blanket order lines: "For blanket order lines - 3.5 percent." Defined order lines taper, at "3.5 percent for the first $50,000 in unit cost and 1 percent for the portion of the unit cost that exceeds $50,000" (SAMM Table C9.T4).
Transportation works the same way but on a different base. Blanket order lines carry the delivery term code percentage. Defined order lines carry that percentage on the first $10,000 of unit cost and a quarter of it above that figure (SAMM Table C9.T4).
The percentage itself comes from a second table, which sets a rate for each delivery term code and destination, with different columns for working capital fund items and everything else (SAMM Table C9.T4A). What those codes mean for who carries the goods is described in delivery term codes and freight forwarders.
The tapering is the point. On a high value item, these two charges are much smaller in proportion than the headline percentages suggest, and a comparison built on the headline rate alone will overstate them.
Nonrecurring cost recovery is a different kind of charge. It asks the buyer to contribute to what it cost the United States to develop and set up production for the item, and it applies only to major defense equipment.
Where the historical record is missing, the manual supplies a formula: "In cases when historical documentation cannot be found, the MILDEP will calculate the pro rata NC at 5 percent of the last known DoD acquisition cost" (SAMM C9.4.5.3).
It also falls away entirely on cases fully financed with non-repayable grant money (SAMM C9.4.5), which is one of the differences described in what non-repayable financing changes.
Unlike the surcharges, this charge can be waived on its merits. The manual lists four grounds: standardization and interoperability with allies, equipment also being bought for American forces with offsetting savings, a sale that would be lost if the charge were imposed, and a reduced price reflecting age or condition.
The last of those is proportionate rather than absolute: "For the sale of MDE at a reduced price due to age or condition, the NC is reduced by the same percentage" (SAMM C9.6.3.1.4).
Approval sits at the top of the agency, after coordination across acquisition, comptroller and, where the ground is loss of the sale, policy. The manual sets one limit that matters commercially: "NCs may be waived or partially waived on a case-by-case basis; blanket waivers are not considered" (SAMM C9.6.3.2). A waiver on the ground of loss of sale must also be approved and the charge deleted before the offer is accepted, not afterwards.
Several other entries in the table apply narrowly, and knowing they exist prevents surprise on a bill.
Two of those are historical, and that is the useful part. A partner reconciling an old case will meet charges that no longer exist on a new one, and the difference is a change of policy rather than an error in the billing.
| Administrative surcharge | 3.2 percent on lines implemented on or after 1 June 2018. SAMM Table C9.T4. |
|---|---|
| CAS | Contract administration services, billed as quality assurance, administration and audit components. |
| PC&H | Packing, crating and handling, tapering above $50,000 of unit cost on defined order lines. |
| NC | Nonrecurring cost recovery, charged on major defense equipment and waivable on four stated grounds. |
| DTC | Delivery term code, which supplies the transportation percentage for a given destination and mode. |
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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