Foreign Military Financing · 4 of 5
Every Letter of Offer and Acceptance carries a term of sale, and that field is where the funding shows up. The manual keeps separate entries for cases paid with repayable credit and cases paid with grant money, listing "FMS Credit (Non-Repayable)" as its own term alongside repayable FMS credit and a Foreign Military Financing guarantee (SAMM Table C9.T11).
The distinction is not administrative tidiness. It changes what the purchaser is charged.
United States practice is to recover a share of what it cost to develop and produce major defense equipment from foreign buyers of that equipment. The statute requires a letter of offer to include "a proportionate amount of any nonrecurring costs of research, development, and production of major defense equipment", and then carves out an exception "for equipment wholly paid for either from funds transferred under section 503(a)(3) of the Foreign Assistance Act of 1961 or from funds made available on a nonrepayable basis under section 2763 of this title" (22 U.S.C. 2761(e)(1)(B)).
The manual states the operational consequence directly. Nonrecurring cost charges "do not apply to cases that are fully financed with non-repayable Foreign Military Financing (FMF) or non-repayable Military Assistance Program (MAP) funds" (SAMM C9.4.5).
The manual records the wider effect on the agreement. Where a case is financed wholly with non-repayable funds "the LOA qualifies for pricing benefits". Those benefits are the exclusion of military salaries and of the nonrecurring costs of research, development and production of major defense equipment (SAMM Table C9.T11).
The exception is all or nothing. A case financed entirely with grant money gets the pricing treatment. A case financed partly with grant money and partly with something else does not.
The manual spells out what happens when a case moves from one state to the other. A change of term of sale from fully funded grant money to mixed funding "impacts the cost of the case", and "any Amendment or Modification that reduces non-repayable FMF or MAP Merger funding below 100 percent requires repricing to add military pay, entitlements, and NC to the entire case" (SAMM C9.8.2.5).
Two features of that sentence matter. The repricing applies to the entire case, not to the portion that changed. And it is triggered by any drop below one hundred percent, however small.
A partner topping up a grant funded case with national money to buy one extra item can therefore find the price of everything else moving. It is the kind of change that looks minor on an amendment and is not.
The pricing exception is specific, and it is easy to read more into it than it says. It covers military salaries and the nonrecurring costs of major defense equipment. It does not cover the cost of administering the program.
The administrative surcharge still applies to the applicable line items on a case, at the published rate, and is charged as a below the line item on the agreement (SAMM Table C9.T4). The surcharge and what it covers are set out in how a US company supplies a Foreign Military Sale.
A partner comparing a grant funded case with a commercial quotation is therefore not comparing a free case with a priced one. Some costs come out; others stay in.
The funding source reaches the contractor as well, most visibly on offsets. The supplement provides that a contractor "may recover all costs incurred for offset agreements with a foreign government or international organization if the LOA is financed wholly with foreign government or international organization customer cash or repayable foreign military finance credits" (DFARS 225.7303-2).
Where the money is nonrepayable the position reverses, and a contractor may not recover costs incurred for offset agreements on a case financed with funds made available on a nonrepayable basis (DFARS 225.7303-5).
A supplier that agreed an offset commitment on the assumption of cash or credit funding, and then finds the case funded by grant, is carrying a cost it cannot pass on. That is a question to settle before signing rather than after.
Grant funding does not remove the purchaser's obligation. Where a case is a procurement rather than a sale from stock, the manual records that dependable undertaking may be used as the term of sale under sections 22 and 29 of the Act. It explains what that means: "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." The purchaser agrees to make funds available in advance of financial requirements, as required by the official billing statement (SAMM C9.8.3.1).
Two obligations therefore sit side by side. American money pays part or all of the price, and the partner government remains the party committed to the contract. If the grant does not cover everything, the difference is the partner's to find.
That is the practical reason a partner's own budget position still matters on a case that looks fully funded from the outside. The funding line describes the source of the money, not the limit of the obligation.
Three questions settle most of this at the point a case is being shaped.
First, is the case wholly funded by non-repayable money, or only mostly. The answer determines whether the pricing exception applies at all.
Second, is any amendment likely that would introduce other funding. If so, the repricing rule should be priced into expectations from the start.
Third, is an offset commitment in play. If it is, the funding source decides whether its cost is recoverable, and the two decisions are usually taken by different people at different times.
| Term of sale | The field on a Letter of Offer and Acceptance recording how the case is financed. SAMM Table C9.T11. |
|---|---|
| Nonrecurring cost | A proportionate share of research, development and production cost for major defense equipment, chargeable under 22 U.S.C. 2761(e)(1)(B) unless the case is wholly non-repayable. |
| Pricing benefits | The exclusion of military salaries and nonrecurring costs on a wholly non-repayable case. |
| Repricing | The recalculation of an entire case when non-repayable funding falls below one hundred percent. SAMM C9.8.2.5. |
| Offset recovery | Whether a contractor may recover offset costs, which turns on how the case is financed. DFARS 225.7303-2 and 225.7303-5. |
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.
Pricing decisions are settled long before anything arrives in country. Sentfore works after that point, on the movement, protection and sustainment that a funded case still depends on. Requirements can be sent through the contact page.