Foreign Military Financing · 3 of 5
Foreign Military Financing is American money, and the statute treats where it is spent as a policy question rather than a commercial one. The manual sets out the rule: section 42(c) of the Arms Export Control Act "prohibits using funds made available under this Act for procurement outside the United States unless the President determines that such procurement does not have an adverse effect on the economy of the United States or the industrial mobilization base" (SAMM C9.7.2.8.3).
That determination has been delegated. The manual records that the President's functions under section 42(c) went to the Secretary of Defense by executive order. Authority to issue offshore procurement waiver determinations was then delegated further to the Director of DSCA, exercised after the State Department and the Commerce Department concur (SAMM C9.7.2.8.3).
A partner wanting to spend FMF abroad is therefore not making a procurement choice. It is asking three United States departments for a waiver.
The waiver requirement is not limited to obviously foreign vendors. The manual lists the situations that trigger one, and the third is the one that catches suppliers out. A waiver is required where the vendor or prime contractor "is a business incorporated in the United States, or an unincorporated business whose principal place of business is in the United States or its outlying areas and one-half or less of the dollar value of the end item constitutes U.S. content" (SAMM C9.7.2.8.4).
An American company can therefore sit on the wrong side of the rule. Incorporation is not the test. Content is, and the threshold is half the dollar value of the end item.
For a supplier building a bid around FMF money, that is a question to answer before pricing rather than after award.
The manual sets conditions that must all be demonstrable before a waiver is granted. Two of them are commercial in nature. One is that "a U.S. source item or service cannot be modified to meet the requirement". Another is that "it is cost prohibitive to procure the item or service in the United States (e.g., a special production run)" (SAMM Table C9.T8).
The others are protective. The table requires that there be no negative impact on the United States industrial mobilization base or on an area of labor surplus if the procurement were made from foreign sources.
Read together, the conditions describe a narrow gate. The case for offshore procurement has to be that no American option exists or that the American option is uneconomic for a specific reason, not that a foreign supplier is cheaper.
An approved waiver is not a permanent license to spend abroad at any scale. The manual records a reporting trigger tied to growth in the value of the project: "DSCA provides an informal notification to State and DOC when the value of an OSP project exceeds that originally anticipated by 50 percent or $1 million, whichever is greater" (SAMM C9.7.2.8.4.2).
A project that grows past either figure therefore comes back under the eye of the two departments that concurred in the first place. For a supplier, scope growth on an offshore funded line carries an administrative consequence as well as a commercial one.
Transport is governed too. The manual states that "all items purchased with FMS credit must be transported by U.S. flag vessels when ocean transportation is used", and that credit funds cannot pay for carriage on a vessel of non-United States registry (SAMM C9.7.2.8.5.1).
The rule is easy to overlook when a case is priced, because carriage is often arranged late and by a different team from the one that negotiated the equipment. Where FMF is paying, the flag of the vessel is part of the compliance picture rather than a logistics preference.
Beyond geography, the manual restricts the shopping list. It states that security cooperation offices "should generally discourage partner nations from using FMF funding for those items identified in Table C9.T10". Exceptions are allowed where the State Department determines the item is critical to the mission, to the bilateral relationship, or to coalition operations where United States forces are present (SAMM C9.7.2.10.6).
The entries in that table show the intent. They include "national budget support, including salaries" and "lease of defense article" (SAMM Table C9.T10).
The distinction being drawn is between capability and running costs. FMF is meant to buy equipment, and the support that makes equipment usable, rather than to underwrite a defense budget.
FMF can pay a company directly in some cases, and there the statute imposes a hard limit. It provides that "not more than $100,000,000 for such fiscal year may be made available for countries other than Israel and Egypt for the purpose of financing the procurement of defense articles, defense services, and design and construction services that are not sold by the United States Government" (22 U.S.C. 2763(h)).
Eligibility for that route widened over time. The manual records that it began with ten named countries and that a later appropriation extended it, "extending eligibility for FMF-funded DCCs to all NATO members and Major Non-NATO Allies" (SAMM C9.7.3).
A supplier weighing a commercial pursuit funded by FMF should check both things: whether the partner is eligible at all, and whether the annual ceiling has room left in it.
| Offshore procurement | Procurement outside the United States with funds made available under the Act, permitted only by waiver determination. SAMM C9.7.2.8.3. |
|---|---|
| Content test | The rule that a United States incorporated vendor still needs a waiver where half or less of the end item's dollar value is United States content. SAMM C9.7.2.8.4. |
| Table C9.T8 | The conditions that must be demonstrable before an offshore procurement waiver is granted. |
| Table C9.T10 | The list of purchases partners are discouraged from making with Foreign Military Financing. |
| DCC | Direct commercial contract, which Foreign Military Financing may fund for eligible partners within the statutory ceiling. |
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.
Rules about where money may be spent do not travel with the equipment once it lands. Sentfore provides the in country layer that does: movement, protection, accommodation and site support. Requirements can be sent through the contact page.