A CompArison of foreign militAry sAles And direCt CommerCiAl sAles

Chapter

A CompArison of foreign

militAry sAles And direCt

CommerCiAl sAles

IntroductIon

In today’s global economy, nations and international organizations have numerous choices among the

various military systems produced throughout the world. The selection process considers many factors

such as system cost, performance, delivery schedule, life-cycle logistics support, interoperability, and

industrial utilization as well as the political relationship with the selected source nation. International

partners establish their prioritized source selection criteria to evaluate each system’s relative benets

and shortcomings under review. In addition to considering systems produced by nations other than

the U.S., our international partners might also consider one or more U.S. defense systems during their

selection process.

The Department of Defense’s (DOD’s) ofcial position regarding the international partner’s

selection is clear. The DOD prefers that allies and friendly nations purchase U.S. systems rather than

foreign systems (SAMM C4.3.4). The purchase of U.S. defense systems by international partners

provides various political, military, and economic advantages derived from the United States and its

international partners using the same military equipment.

Although the U.S. Government (USG) ofcially prefers that international partners select U.S.

systems, the USG is generally neutral regarding their choice to purchase by means of Foreign Military

Sales (FMS) or Direct Commercial Sales (DCS) (SAMM C4.3.4). Thus, most U.S. military systems

may be purchased through either FMS or DCS. The preceding chapters in this text provided a thorough

explanation of the FMS process. This chapter will compare the FMS process to the DCS process.

The purpose of this chapter is to examine the various factors that impact FMS and DCS acquisition

decision-making. Another pertinent reference that is available on this topic is “A Comparison of

Foreign Military Sales (FMS) versus Direct Commercial Sales (DCS)” research paper which is posted

on the DSCA Publications website: https://www.dsca.mil/resources/publications.

ForeIgn MIlItary SaleS-only IteMS

Although most defense items, services, or training can be purchased through either FMS or DCS, in

limited instances, technology or security concerns may require that sales of specic items be restricted

to FMS-Only. The Arms Export Control Act (AECA) gives the President discretion to designate which

military end items must be sold exclusively through FMS channels. This authority is delegated to the

Secretary of State, who makes the designation based on DOD input. Military Departments (MILDEPs)

and DOD components forward recommendations and rationales for FMS-Only designations to the

Defense Security Cooperation Agency (DSCA). DSCA provides FMS-Only recommendations to the

Department of State (DOS) for review and approval/disapproval. The Defense Technology Security

Administration (DTSA), in coordination with the MILDEPs, implements this process through

its involvement with DOS in reviewing commercial export license requests. DOS will not issue a

commercial export license for sales that have been designated FMS-Only. The SAMM C4.3.5 outlines

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the process for designating a particular sale or military item as FMS-Only. DOS uses four general

criteria to determine if a sale is required to proceed through the FMS process. The criteria are:

• Legislative/Presidential restrictions

• MILDEP policy, directive, or regulatory requirement (e.g., the National Disclosure Policy);

(3) government-to-government agreement requirements; and (4) interoperability/safety

requirements for U.S. forces.

These criteria, particularly DOD/MILDEP policy, can be further understood by considering four

possible elements:

• U.S. political/military relationship with the end user. The geopolitical situation and security

relationships are taken into account when considering the appropriateness of FMS-Only.

The inherent strengths of FMS or DCS licensing methods are also considered in selecting

the method that best suits the interests of the United States and the international partner

within the context of existing world security circumstances.

• Sale of a new or complex system or service. DOD may recommend FMS-Only:

1. To maximize the international partner’s ability to assimilate the technologies and

manage its acquisition/logistics

2. For enhanced interoperability and cooperation between U.S. and international partner’s

military forces

3. For end items or services that require complex systems integration with other combat

systems

4. For end items or services that require access to sensitive U.S. government (USG)

databases, libraries, or software-source code

5. For end items or services that require Enhanced End-Use Monitoring (EEUM) or on-

site accountability

• Diversion and exploitation of defense systems technologies. Security of sensitive

technologies is an area of particular concern that requires greater scrutiny in the transfer

process. Defense systems and munitions that are not particularly complex or sensitive

but still require enhanced control to prevent proliferation to rogue states or terrorist

organizations, represent another area where FMS may be more appropriate than DCS.

• Feasibility of separating weapon system components into FMS/DCS elements. At times,

international partners may desire all or a portion of a sale to be DCS. It is possible to

separate the FMS-Only aspects of a purchase from the portion that can be DCS.

The “FMS Only List”, located in SAM C4.3.5.2., lists military capabilities and systems by general

category that the USG broadly considers to be available for export on an FMS only basis. This list is

reected in Table 15-1.

Table 15-1

General FMS-Only Categories

• Select Radars: such as but not limited to AESA,

Ballistic Missile Defense, and High-Frequency

Phased Array Microwave

• Air-to-Air Missiles

• Attack Helicopters • Autonomous Weapons Systems

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• Ballistic Missile Defense Items: Effectors; Firing

Units; Software

• Special Purpose Aircraft Items

• Counter Improvised Explosive Device Items • Cross Domain Solutions (involving critical U.S.

systems)

• Directed Energy Weapons • Fighter Aircraft

• Ground Based Air Defense Items • Infrared Countermeasures

• Intelligence Libraries/Threat Data • LADAR/LIDAR (Laser/Light Detection and

Ranging)

• Man-Portable Air Defense Items • Military Aerosol Delivery Systems

• Missiles • Mission Equipment/Systems

• Mission Planning Systems • Missile Technology Control Regime CAT I Items

• GPS/PPS (Allowances made for certain DCS

transfers remain in effect)

• Nuclear Weapon/Nuclear Propulsion

• Select Electronic Warfare Items • Select Sensor Fusion Man-Portable Night Vision

Devices

• Sensor Fused Weapons • Stand Off Weapons

• Sonar • COMSEC

• Select Torpedoes • Torpedo Countermeasures

• Anti-Ship Cruise Missile Countermeasures • Unmanned Aerial Systems and related components

dIrect coMMercIal SaleS PreFerence

In instances where the USG is neutral regarding the purchase by FMS or DCS, SAMM C4.3.6

permits U.S. defense rms to designate a preference that a sale of their products or services is on a

DCS basis. When a company receives a request for proposal from a international partner and prefers

a direct commercial sale, the company may request DSCA issue a DCS preference for that particular

sale. Approved DCS preferences are valid for one year and are held within Security Cooperation

Ofces (SCOs) and at the item-manager level to allow screening of future letters of request. If the

applicable Implementing Agency (IA) receives a request from the international partner for a DCS

preference item, the IA noties the international partner of the DCS preference and advises them to

contact the applicable company directly.

Support of a DCS preference is a “best-effort” commitment by the DOD. This means that any

failure on the part of the IA to comply with the DCS preference will not invalidate any resultant FMS

transaction. Items provided on blanket order lines and those required in conjunction with a system sale’s

Total Package Approach (TPA) do not normally qualify for DCS preference. International Partners

funding a purchase using Foreign Military Financing (FMF) funds may be required to purchase by

FMS. The Director, DSCA, may also recommend that it mandate FMS for a specic sale to the DOS.

coMbInatIon oF ForeIgn MIlItary SaleS and dIrect coMMercIal SaleS

The comparison of FMS and DCS is generally intended to evaluate the circumstances of a particular

procurement to determine which method offers the greatest advantages. However, SAMM C4.3.5.4.4

permits an overall sale to be separated into an FMS portion and a DCS portion. This means that an

entire sale does not have to be FMS simply because there is an FMS-Only component to the sale. The

FMS-Only portion can be sold through the FMS process, while the remainder of the sale proceeds on

a DCS basis. Close coordination is required to ensure that the FMS-Only portion and the DCS portion

will interface seamlessly upon delivery to the international partner.

In regard to FMS materiel or services support for DCS, advance planning and coordination are

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essential in any situation where industry anticipates requiring both DCS and FMS elements in order to

fulll the terms of a DCS contract. Industry is not authorized to make commitments on behalf of the

USG. Industry should inform the international partner of FMS articles or services required to support

the DCS purchased equipment. Examples of types of FMS support for DCS include airworthiness

certication, training in U.S. military schools, aircraft ferry or other transportation services, or the

provision of FMS-Only articles or services. The international partner should then submit a Letter of

Request (LOR) early in the DCS process to obtain the required FMS support.

SuStaInMent SuPPort

Initial acquisition of a major system is just the beginning of what is required to support the system

throughout its life cycle. These systems will often be active in the international partners’ military

inventory for more than a decade. Over this period of operational utility, a signicant investment will

also be made in the form of sustainment support. The method utilized to initially acquire a defense

system does not obligate the international partners to obtain sustainment support for that system through

the same original acquisition method. Per SAMM C4.4.3, systems acquired by DCS are eligible to

obtain FMS sustainment support for common support items. Likewise, systems acquired by FMS can

be supported by DCS if the international partner desires, except for of any FMS-Only sustainment

items.

unIted StateS governMent SaleS SuPPortIng dIrect coMMercIal SaleS

The AECA, Section 30, authorizes the USG to sell defense articles and services to U.S. companies

in support of a proposed direct commercial sale and pursuant to an approved export license from

the USG into end items being sold an international partner. Services may include transportation,

installation, testing, or certication directly associated with the sale. Per SAMM C11.T9, the sales

must meet the following criteria:

• Sale is to a company incorporated in the United States that has an approved export license for

nal assembly, manufacture, or concurrent or follow-on support of an end item being procured

for the armed forces of a friendly country or for an international organization.

• The articles would be supplied to the prime contractor as GFE/GFM if the end item were being

procured for the use of the U.S. Armed Forces;

• Any services being provided must be performed in the United States and may include

transportation, installation, testing, or certication that are directly associated with the sale.

• And the articles and services are available only from USG sources or are not available to the

prime contractor directly from the U.S. sources at such times as may be required to meet the

prime contractor’s delivery schedule.

The USG uses a unique sales agreement for the sale of defense articles and/or services to U.S.

companies. The SAMM Table C11.T11 outlines the information included in the sales agreement.

Payment is required upon signature of the sales agreement. If there is an increase in the cost, the

company is required to make additional cash payments to fund the costs. To allow for planning and

marketing, IAs are authorized to provide cost and delivery data to authorized potential companies

before executing a sales agreement. Such data are identied as estimates that are not binding on the

USG.

concurrent ForeIgn MIlItary SaleS and dIrect coMMercIal SaleS negotIatIonS

For most defense articles or services, the international partner has the choice to purchase by either

FMS or DCS. However, it is the policy of the USG not to compete with U.S. industry for foreign

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defense sales. Per SAMM C4.3.7, the USG normally will not provide foreign governments with a

Letter of Offer and Acceptance (LOA) to sell when it is known that a DCS contract has been requested

or is already being negotiated.

If the international partner obtains FMS data and, later determines they should request a commercial

price quote, the international partner should cancel the LOR prior to requesting commercial data. If

an LOA has been offered and the international partner then solicits formal bids from private industry

for the same item, the IA should query the international partner as to its intentions and indicate that

the LOA may be withdrawn. If the international partner requests FMS data after soliciting bids from

contractors, the international partner must supply information to the IA showing that commercial

acquisition efforts have ceased before any FMS data is provided. If an international partner’s national

policy or specic circumstances require that both FMS and commercial data be obtained for the item to

be procured, the international partner should submit a request for exception with justication to DSCA

(Strategy, Plans, and Policy Directorate (SPP)).

ForeIgn MIlItary FInancIng (FMF) PrograM

Foreign Military Financing (FMF) program funds (if available) are generally required to be used

through the FMS process. The purpose is that FMF program funds are grant funds provided by the

USG to further U.S. interests around the world by ensuring that international partners are equipped

and trained to work toward common security goals and share burdens in joint missions. However, per

SAMM C9.7.3, FMF program funding can, in certain circumstances, be used to fund DCS contracts.

Under law, only ten countries can use FMF funding to nance DCS contracts. The ten countries are

Israel, Egypt, Jordan, Morocco, Tunisia, Turkey, Portugal, Pakistan, Yemen, and Greece.

Although ten countries are eligible to use FMF program funds in DCS contracts, all FMF purchases

must be approved by DSCA on a contract-by-contract basis using Foreign Military Financing of Direct

Commercial Contracts (FMF DCC), which is posted at the DSCA Resources Publications website

https://www.dsca.mil/resources/publications. Commercial contracts nanced with FMF program

funds must be valued at $100,000 or more and are intended for the procurement of nonstandard items

(items that do not have a national stock number and are not currently being used by the DOD). Offset

costs are prohibited from being included on an FMF- nanced DCS. Additionally, the prime contractor

must be incorporated or licensed to do business in the United States unless DSCA has approved an

offshore procurement per the procedures in SAMM C9.7.2.7.3.

coMParISon conSIderatIonS

Relationship Considerations

Under FMS, the international partner is entering a direct government-to-government relationship

with the USG. In fact, the international partner is purchasing directly from the USG. This arrangement

can be viewed as either an advantage or a disadvantage depending on the political climate. Some

international partners desire the association implied by the FMS interaction. Other international partners,

where the popular view of the United States is not as positive, may desire to distance themselves from

the USG and enter into a DCS arrangement with a U.S. contractor. In this situation, public opinion

may view a relationship with U.S. industry more favorably than the direct government-to-government

relationship inherent in FMS.

The USG is involved in approving both FMS and DCS. For FMS, DSCA consults with the DOS

for approval to develop new FMS cases. For DCS, the contractor must apply to the DOS to obtain an

export license. In either method, the DOS makes the nal decision to authorize military defense sales.

Under the AECA, both FMS and DCS must be notied to the U.S. Congress if the proposed sale

meets or exceeds the statutory dollar thresholds. The statutory Congressional Notication requirements

for FMS can be found in Chapter 2 of this textbook. The key difference in Congressional Notications

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between FMS and DCS relates to the timing during the acquisition cycle. For FMS, Congressional

Notication occurs prior to the U.S. Government contracting with a U.S. contractor for the goods

and prior to LOA offering. For Direct Commercial Sales, Congressional Notication takes place

following contract signing with the foreign party. This has created a misconception that DCS is faster,

because, under DCS, there is a shorter timeline to contract signing. However, this does not necessitate

a difference in the delivery timeline.

Figure 15-1

Foreign Military Sales and Direct Commercial Sales Relationships

All sales of defense articles or services, FMS or DCS, must not negatively impact U.S. strategic

national security and foreign policy interests. This determination is made for DCS in the licensing

process and for FMS in the internal coordination process of preparing a case. Although it rarely occurs,

the USG always reserves the right to terminate a DCS export license or an FMS case and to halt the

actual export deliveries of FMS items or DCS-licensed items when doing so is determined to be in the

national interest of the United States.

Other relationship considerations are decisions of technology transfer and disclosure of classied

information, as discussed in Chapter 7 of this book. Decisions on technology transfer and disclosure

of classied information are also referred to as releasibility decisions or releasibility policy decisions.

Under FMS, the DOD IA engages with the DOD technology transfer and disclosure infrastructure to

support releasibility for the proposed sale. Generally, releasibility must be completed prior to the U.S.

Government engaging in technical conversations or prior to issuing a DCS license to U.S. industry

to comply with the avoiding false impressions policy. Under a DCS arrangement, industry must

precoordinate the requested scope of the license with the MILDEPS and/or releasibility community if

the request does not fall within existing export policy allowances. Releasibility reviews can be resource-

intensive, both in terms of available experienced personnel with knowledge of the capability and system

and funding of the manpower to support the review process. The availability of FMS administrative

funding for FMS cases to support these reviews, including activities as requirements denition with

the international partner, Critical Program Information (CPI) assessments, and differential capability

analysis, among other activities, can be an enabler to support rst-time exports of complex systems.

Management Considerations

The FMS process is executed by U.S. DOD civilian employees and active-duty U.S. military

personnel. The direct involvement of DOD personnel in managing the procurement and delivery of

an international partner’s programs leads to robust communications throughout the FMS case life as

U.S. GovernmentU.S. Government

U.S. ContractorU.S. Contractor Foreign

Government

Foreign

Government

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many day-to-day program issues are identied, evaluated, and resolved. This level of communication

and personal interaction is often viewed as a catalyst for building stronger overall military-to-military

relationships.

In DCS programs, contractor personnel can be expected to be very knowledgeable about their

products. Defense contractors typically employ individuals who possess extensive experience with the

DOD and often include individuals with prior active-duty-experience in the U.S. military. Despite this

prior DOD experience, many international partners value the direct interaction with DOD civilian and

active-duty U.S. military personnel offered through the FMS process.

Lead Times

Care should be taken when comparing timelines under FMS and DCS; neither FMS nor DCS are

faster than the other in general, and many factors impact delivery timelines. The FMS acquisition process

involves the development, review, and acceptance of the case, plus the assembling of requirements for

economic quantity or consolidated purchasing cycles as well as contract negotiations and production

lead times. An individual international partner’s priorities must be integrated into the overall DOD-

acquisition priority in the FMS process.

By contrast, the DCS system only involves contract negotiations and production lead times after

the company obtains the export license. In general, industry prepares its proposal more quickly than

the USG prepares the case. Under DCS, the international partner negotiates its priority with industry.

Industry may be capable of accelerating their processes for commensurate nancial compensation. It

is also possible that international partners with a well-developed purchasing capability can negotiate

sales contracts more quickly than the DOD, which is bound to the structured Federal Acquisition

Regulation (FAR) process.

For secondary and support items, the DOD may maintain an inventory. In cases of an emergency

for the international partner, if the materiel is available in DOD inventories, it may be possible for the

FMS international partner to achieve faster delivery through shipment from DOD stocks or through

the diversion of items that are under production for the DOD. Contractors normally do not produce

items in anticipation of sales and generally do not maintain an extensive inventory of defense articles.

Contract Issues

Whichever procurement method an international partner decides is best for its situation, some basic

form of legal agreement is required. The contract process has several areas that should be evaluated by

prospective and international partners.

Under the FMS system, purchases for an international partners are made by a well-established

DOD contracting network. The DOD is committed to procuring FMS defense articles and services

under the same contractual provisions used for its own procurements. This system is designed to

acquire the required quality items at the lowest price from qualied sources and to provide for contract

administration. In fact, FMS and DOD orders are often consolidated to obtain economy-of-scale buys

and, therefore, lower unit prices. Although the DOD’s procurement process offers these benets, the

international partner will be charged an appropriate fee in the case, for the contracting and administrative

services provided by the DOD.

In DCS, the international partner assumes contract negotiation and management responsibility. These

activities represent overhead management costs to the international partner and the actual contract cost.

Although it is not necessary for an international partner to fully duplicate the DOD contracting network

make an efcient commercial purchase, the size and skill of the international partner’s contracting staff

may be a limiting factor in the quantity and complexity of DCS procurements. Numerous contractors

and subcontractors may be involved in supplying the entire package for a major weapon system. As a

result, multiple DCS contracts may be necessary to procure the total system. The capability and capacity

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of the international partner’s indigenous procurement system must be evaluated.

Contract Negotiation

Direct Commercial Sales can allow for more exible contracting because U.S. industry is not

required to adhere to the same regulatory requirements as the U.S. Government. International partners

may wish to participate actively in tailoring the procurement process by xing delivery schedules,

negotiating xed prices, including special warranty provisions, and ensuring that designated penalties

are stipulated for contractor failure to comply with the contractual agreement. Other exible

arrangements that may be negotiated into DCS might include a used-equipment trade-in or a sale

involving a barter arrangement as partial payment.

The USG assumes responsibility for the procurement of FMS items. It determines the contract

type, selects the contract source, and negotiates prices and contract terms with individual contractors.

These negotiations are conducted on the same basis as procurements for DOD purchasers. Under FMS,

the international partner trusts the USG to negotiate a contract that will meet the international partner’s

needs.

The USG generally purchases directly from as many original manufacturers as possible, minimizing

the purchase price. This approach avoids going through a single prime contractor to procure various

items from subcontractors and, therefore, also avoids the associated prime contractor price mark-ups

on subcontracted components. Unless an international partner’s purchasing staff is sufciently large

and skilled, a comparable procurement approach of purchasing directly from subcontractors cannot be

duplicated in DCS.

Contract Administration Services

Under FMS, Contract Administration Services are included as standard components of the overall

FMS price; they include contract quality assurance, inspection, and audit services.

For commercial contracts, the purchasing international partner must consider the additional cost

of resources needed to monitor production, evaluate modications, provide for improvements, and

ensure contract compliance. A large number of highly educated personnel well trained in international

commerce, quality assurance, and audit processes may be required to perform such functions.

For DCS, rather than placing international partners personnel throughout the United States to

perform contract administration functions, it may be more cost-effective to acquire this support from

the USG. It is possible for the international partners to purchase contract administrative services for a

DCS under a separate FMS case with the Defense Contract Management Agency (DCMA).

Financial Considerations

International partners frequently desire to compare the FMS total cost to the DCS total cost. It is

the policy of the USG for FMS not to compete with U.S.-industry DCS; the USG does not support

cost comparisons. It is difcult to predict whether employing the FMS system or direct commercial

channels would be more or less expensive for any particular acquisition. The differing contractual

pricing and nancing approaches, as well as variations in the total package content, make cost

comparisons between FMS and DCS quite difcult.

Estimated Price versus Final Price

The case provides estimated prices and estimated payment schedules. The nal price of an FMS

item or service generally will not be known until after it is delivered. The nal price is determined by

actual USG contract cost and other authorized FMS charges applied under the provisions of U.S. laws

and regulations.

The fact that the nal case cost is generally lower than the initial case price estimate is a distinctive

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feature of the government-to-government FMS agreement. A multi-year DOD analysis of case prices

revealed that nal case costs generally fall below initial case estimates. While this is an interesting

observation, the international partner cannot count on their particular case over-estimating the nal

cost.

On the other hand, DCS prices, typically provide a xed price with a xed payment schedule. U.S.

industry may prot under DCS. Depending on the negotiated contract structure, U.S. industry may

assume losses on a sale. U.S. industry could structure a contract such that the international partner

assumes any additional charges over the nal price, protecting U.S. industry from losses. Flexibility

under DCS allows for U.S. industry to weigh potential prot gains against potential losses.

Support Package Differences

Under the FMS system, the USG includes all support equipment, spare parts, training, and

publications in the TPA. In DCS, the contractor may also develop a support package for the primary

item. Depending on the factors used to develop these support packages, the actual content of the

support packages may differ. There may be signicant cost differences in the FMS offer versus the

DCS proposal, even though both contain the same type and quantity of primary items.

In DCS, contractors achieve cost savings by offering other than DOD military standard

congurations. It is important for the international partner to understand that any deviations from

typical DOD congurations could limit interoperability and cooperative logistics follow-on support

from the DOD. The cost savings achieved in the initial acquisition of a nonstandard DOD conguration

may be quickly outweighed by the added cost of sustaining a nonstandard system.

Contract Price Factors

In situations where two or more manufactures are competing for the international partner’s business,

DCS contract prices may be less than FMS prices. This may be possible because the manufacturers

may be willing to agree to xed prices that are below the normal prot margins allowable under

DOD contracting regulations. Price advantages under DCS may also be possible during times of rapid

ination in the U.S., especially if the contractor has the ability to make quick deliveries from rapid

new production.

The FMS process has the potential to offer lower contract prices, primarily through larger

quantity buys achieved by grouping DOD and multiple FMS requirements into a single procurement.

Additionally, the DOD may already have priced contracts in place for the DOD that can potentially

support new FMS requirements. Typically, the DOD has procured the same or similar items under other

contracts. With this knowledge and experience, the DOD may be more informed in the negotiation

process. The FAR permits the DOD, under certain contracting conditions, to require the contractor

to substantiate their bid with supporting cost or pricing information. This is an important factor in

ensuring that a fair and reasonable price is being paid for the articles or services under a contract.

Cash Flow Requirements

Direct commercial contracts generally require a relatively large down payment, payable at the

time of contract signature. The size of such down payments varies with circumstances and the level of

contractor risk. For FMS cases, the initial deposit required at the acceptance of an LOA is generally

somewhat lower than commercial contract down payments. For items with a substantial production

period, the phased progress payment system used for FMS may distribute the payment burden beyond

the payment requirements of commercial contracts. These possible differences in payment terms

should be evaluated as part of the international partner’s procurement decision.

One special feature of the FMS system involves the potential use of cross-leveling agreements.

Cross-leveling agreements allow international partner funds which are on deposit in the FMS trust

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fund to be moved to and from special holding accounts or moved between separate FMS cases, thereby

maximizing the use of the international partner’s funds. Two methods can accomplish Cross-leveling.

In the rst method, international partner nancial personnel conduct their analysis to provide cash

transfer direction to the USG. In the second method, the international partner authorizes the USG, by a

written agreement, to conduct automatic cross-leveling to balance funds requirements among all FMS

cases. Cross-leveling is in contrast to direct commercial contracts, which stand alone and typically

provide for xed prices with xed payment schedules but with no provision for the movement of funds

between individual contracts. In short, cross-leveling under FMS provides the advantage of exibility

to the international partner to meet changing requirements.

Non-recurring Cost (NC) Recoupment Charges

The AECA requires a charge for a proportionate amount of any non-recurring costs (NC) of research,

development, and production of major defense equipment sold through FMS. This AECA requirement

is not imposed on DCS; it is up to industry to decide how much of the industry Internal Research And

Development (IRAD) costs to shift to the international partner For systems or capabilities in the U.S.

inventory, the USG Research and Development (R&D) investment can only be recouped under FMS

via NC. The same system or capability sold under DCS would not result in a recuperation of U.S.

taxpayer R&D investment dollars. However, for international partners desiring to purchase via FMS,

a provision exists to potentially waive the application of NC under FMS. More information on the waiver

process for NC Recoupment Charges is contained in Chapter 12 of this text, “Financial Management,” and

the SAMM, C9.6.3.

Other Costs

The issue of other costs in both commercial contracts and FMS agreements requires clarication.

As stated in Section 3 of the LOA standard terms and conditions, the USG conducts FMS on a non-

prot basis. Except for specic statutory exemptions, all USG expenses for FMS must be recovered

from the international partner. The FMS administrative surcharge and FMS contract administration

services costs that are added to the basic price of an FMS agreement recover the cost of the following

• Pre-LOR and Case development

• Case implementation

• Case management

• Contract negotiation

• Contract management and auditing

• Financial management

• Processing reports of discrepancy

• Case reconciliation/closure

SAMM Table C9.T2 outlines FMS-related activities and their proper source of funding. Activities

listed in the “Admin” column represent indirect charges funded by the FMS Administrative Surcharge.

For FMS, the LOA price includes the base cost that the USG paid for the item or service plus the

other authorized charges necessary to recover the full cost to the USG. Although the USG does not

make a prot from FMS, the price paid to DOD contractors does include a fair and reasonable prot

for the contractor. However, the amount of contractor prot is limited by the provisions of the FAR.

The full contract cost, including contractor prot, is paid via the LOA.

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Conversely, the prot ceiling for commercial contracts is established by the marketplace. The

international partner will not normally have access to information that reveals how much general and

administrative costs or overall contractor prot is included in a direct commercial contract. U.S. rms

typically add administrative costs as part of their equipment unit prices, whereas FMS administrative

costs are identied as a separate item on the FMS agreement. More information on FMS nancial

management is contained in Chapter 12 of this text, “Financial Management.”

Other Comparison Considerations

Evaluating the relative advantages or disadvantages of conducting a sale by FMS or DCS can be

complex. In addition to the relationship, management, and nancial issues, there are other factors that

an international partner must also examine.

Production Priority

There are many defense articles produced by U.S. industry using production equipment provided

by the DOD or in USG-owned facilities. Such production equipment and facilities are made available

to the contractor to fulll DOD requirements, including FMS requirements. Contractors may use such

facilities and equipment for DCS only with USG approval and only when there is no adverse impact

on DOD requirements. Except in times of crisis, the prioritization of such equipment or facilities is not

a problem.

The USG has established an industrial priority system to resolve conicts in production priorities.

Each U.S. defense program is assigned a specic priority based on the program’s relative importance to

the USG. The USG uses its relative need for a system to settle production conicts rather than leaving

such resolution to the discretion of contractors. FMS equipment normally is purchased together with

U.S. equipment and shares the U.S. industrial priority. DCS involves independent contracts that do not

automatically receive the same production priorities as DOD procurements.

Another consideration involves government-furnished equipment (GFE) or government-furnished

material (GFM). The contractor generally incorporates such items into larger systems, which are then

delivered to either the DOD or an international partner. Contractor access to GFE or GFM in support of

DCS could signicantly impact the capability of a contractor to make a direct sale. By contrast, under

the FMS system, the DOD coordinates the delivery of GFE or GFM directly to the prime contractor

for both U.S. and FMS requirements. As identied earlier in this chapter, under certain conditions,

U.S. companies may be eligible to procure items or services from the DOD to support a DCS program.

If GFE and GFM components are not available directly to a contractor, the international partner

could acquire them under FMS procedures and provide them to the contractor for incorporation in

the end item. This procedure, of course, would make a commercial acquisition more complex for the

international partner and would require careful coordination of both the commercial and the FMS

transaction.

Follow-on Logistics Support

An important consideration in the purchase of U.S. defense articles involves the nature of the

follow-on support required from U.S. sources. If the items being purchased are also being used by the

U.S. military and are known to require substantial logistical, technical, and training support, the FMS

purchase may offer support advantages. FMS permits the international partner to capitalize on U.S.

experience and existing USG logistics inventories and training facilities. If items are not available

from the DOD spare parts inventory, the DOD logistics structure serves as procurement staff for the

international partner by procuring required individual items from the current U.S. sources. Additionally,

the FMS cooperative logistics supply support arrangement, as described in Chapter 10 of this book,

offers an effective means to replenish in-country spare and repair parts.

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Some U.S. contractors who also are capable of providing full logistics support for the items that

they sell. Corporate reputations depend on good performance, and where contractors can furnish such

support, the results can be expected to be as stated in their contracts.

The DOD may provide follow-on support for end items acquired through DCS. However, the

DOD’s ability to support DCS items may be limited when equipment congurations differ. Also, if the

manufacturer only uses commercial part numbers to identify items without cross-referencing to DOD

national stock numbers, USG support will be greatly complicated, and support delays may result.

Logistics support is frequently facilitated by the international partner’s ability to use DOD

information and data transmission systems such as the following:

• International Logistics Communication System (ILCS)

• Supply Tracking and Reparable Return/Personal Computer (STARR/PC) (No longer

supported by the USG, but international partner can still use it as long as it continues to

work.)

• Security Cooperation Information Portal (SCIP)

The DOD also has dedicated security cooperation staffs and in-country SCOs to facilitate the

administration of FMS. Per SAMM C2.1.8, the SCO can also provide limited support to industry.

For DCS activities, the SCO supports and coordinates with the commercial attaché whose role is

predominately facilitating U.S. industry’s marketing phase rather than aiding in program execution.

More information on FMS logistics support is contained in Chapter 10 of this book.

Nonstandard Items and Non-Programs of Record

Nonstandard items are those systems or capabilities that differ from the U.S. conguration. Non-

Program of Record systems or capabilities are items that are not DOD Programs of Record and may

include nonstandard items. Standard items can become nonstandard items as the DOD phases out

certain items, models, or congurations and replaces them with other items, models, or congurations.

Supporting the releasibility review of Non-Program of Record systems and capabilities can add

complexity. The DOD introduced the Non-Program of Record Community of Interest (NPOR COI),

with DSCA as the Executive Secretariat, to help address this challenge. Together, the industry

associations and DOD created the USG Community of Interest (COI), comprised of representatives

from select DOD ofces (e.g., USD(A&S) and DSCA), various implementing agencies (IAs), and other

interagency entities. “The formation of the COI represents a signicant step forward in facilitating a

centralized, formal process for NPOR proposals,” noted an August 3, 2020, DSCA letter. The COI’s

work culminated with the release of the July 2020 “Non-Program of Record U.S. Industry Handbook”

(https://www.ndia.org/-/media/sites/ndia/policy/blog/documents/npor-us-industry-handbook.ashx)

that outlines the acquisition, FMS, and DCS procedures for NPORs. Moreover, it provides points

of contact for contractors and nally sets up a classication framework for NPORs. Sustaining non-

program of record goods can be challenging under FMS because of the lack of existing logistics

infrastructure in place to support items that do not have a DOD Program Ofce. The DOD has

implemented the commercial buying service (CBS) support (e.g., Parts and Repair Ordering System

(PROS) and Simplied Non-Standard Acquisition Process (SNAP) as discussed in SAMM C6.4.4

and Chapter 10 of this book) for nonstandard items (i.e. contracting-out nonstandard support). CBS

support for nonstandard systems or components is usually provided via an FMS case. In general, DCS

has provided better support for nonstandard items.

Training

Training is a key element of successfully operating and maintaining today’s high technology

military equipment. The DOD has established training resources to support its own training needs.

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Under FMS, international partners can access many of these training resources. Although the DOD

does acquire contractor training in certain circumstances, some types of military training are simply not

available through commercial sources, such as access to the DOD’s unique training ranges. On the

other hand, the international partner may require some form of tailored training not available from the

DOD.

Classied Items

Classied items can be procured through either DCS or FMS unless otherwise specied by the

FMS-Only list or otherwise restricted from export. Transportation of classied goods procured under

DCS needs to be coordinated through the USG. The same national security and foreign policy reviews

will take place regardless of whether classied items are procured through FMS or DCS.

range oF choIceS

In comparing the FMS system to the DCS system, it is important to realize that the decision

rests with the international partner, and the USG is generally neutral, aside from the FMS-Only list.

Additionally, both FMS and DCS acquisitions offer various international partner participation options.

In essence, the decision concerning procurement via FMS or DCS fundamentally involves a decision

about the degree of procurement involvement the international partner desires to assume and what

degree of procurement responsibility the international partner is willing to give to the DOD. Table 15-2

presents the range of options, each of which will be discussed further in the sections below.

Table 15-2

International Partner Participation Options

Traditional FMS

FMS funded with FMF

FMS with Sole Source designated

FMS with International Partner Participation in Contracting

FMS with Industry Osets

Hybrid FMS/DCS

DCS funded with FMF

DCS with USG contract administration

DCS with Industry Osets

Traditional DCS

Traditional Foreign Military Sales

Under traditional FMS, the international partner initiates the process by submitting a LOR to the

USG. The IA will coordinate national security and foreign policy reviews (which includes releasibility

reviews) during the development of the case. Following completion of these reviews, the IA will

generate an LOA. Following any necessary congressional notications, the IA will forward the LOA as

an offer by the USG to sell the respective defense articles and/or services. If, upon review of the LOA,

the international partner decides to accept the LOA, a foreign government representative will sign the

LOA and forward the initial deposit to the Defense Finance and Accounting Service (DFAS)-Security

Cooperation Accounting (SCA). At this point, per the SAMM C5.4.16, the international partner and

the USG have entered a formal sales agreement for the provision of defense articles and services. If

any situation arises that puts at risk the USG’s ability to meet a commitment made to an international

partner, it is the Case Manager’s responsibility to alert the DSCA CPD/CFM in writing so that the

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broader SC enterprise can be informed in advance and a unied response can be provided. If the IA

does not intend on offering the requested capability in the LOR, the IA will coordinate with DSCA.

The case standard terms and conditions dene the nature of this sales relationship. Section 1.2

specically denes the procurement responsibilities and states that the international partner has

entrusted the procurement process to the DOD. The DOD will conduct the procurement on behalf

of the international partner using the same regulations and procedures that the DOD uses to procure

for itself. Under traditional FMS, the international partner is not responsible for accomplishing any

procurement actions following acceptance of the LOA. Under the provisions of the case, the DOD

takes responsibility for the following:

• Conducting the entire procurement process, to include contractor source selection, and

negotiating the contract terms and conditions

• Contract administration, quality control, inspection, acceptance, and audit functions

As a very broad generalization, the traditional FMS process can be characterized as a international

partner, by means of the case, employing the DOD to conduct defense procurement on its behalf.

As such, the international partner entrusts the DOD to make decisions and take actions on its behalf.

The international partner relies on the good faith commitment that the DOD makes to conduct FMS

procurement business in essentially the same manner that it conducts procurement business for itself.

FMS Funded with Foreign Military Financing (FMF) Program

Per SAMM C9.7.2.9.2, Foreign Military Financing (FMF) Program funds are used to nance FMS.

The traditional FMS process is used to establish the government-to-government sales agreement;

however, the FMS case LOA will specify the fund source as either a non-repayable grant or a repayable

direct loan.

Sole Source Foreign Military Sales

International partners often have an interest in reviewing various vendors’ business proposals to

fulll a particular defense requirement. Depending on the international partner and type of purchase,

there can be signicant interest in source selection (i.e., deciding which vendor(s) will fulll their

contract). FMS procedures offer the international partner an important opportunity for direct

involvement in that decision. Sole source procedures allow the international partner to request the

DOD initiate a particular FMS procurement exclusively with a specic vendor of the international

partner’s choice, which is often expressed as a request for a specic system as opposed to a particular

capability. This process is referred to as sole source procurement. Details on the sole source process are

presented in Chapter 9 of this textbook.

Approved sole source requests are documented within the LOA notes and serve as the basis for the

USG contracting ofcer to negotiate on a non-competitive basis with the specic company identied

in the LOA. The international partner can be involved in source selection by downselecting to the

specied vendor or system requested in their sole source LOR while beneting from the FMS system’s

extensive expertise in contract negotiation, contract administration, quality control, inspection,

acceptance, and audit functions.

FMS with International Partner Participation in Contracting

SAMM C6.3.5 outlines the areas for potential international partner participation in the DOD

contracting process. Traditionally, the norm has been no or very limited international partner

involvement in the DOD contracting process; however, policy in both the SAMM and the DFARS,

permit international partners to participate in certain elements of the contracting process. This policy

supports the overarching intent for the FMS process to provide transparency to international partners.

Chapter 9 of this text discusses potential areas and limitations for international partner participation.

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Foreign Military Sales with Offsets

Offsets offer a mechanism for the international partner to leverage a major defense acquisition to

obtain other domestic benets for the international partner’s nation. The concept of offsets is presented

in detail in Chapter 9 of this textbook. Many international partners have the misconception that offsets

are only compatible with DCS procurements, but this is not true. Offset agreements can occur in

conjunction with international partner-funded FMS cases, but FMS cases nanced with FMF funds or

other non-repayable credits are not permitted to include any offset costs.

Combination of Foreign Military Sales and Direct Commercial Sales

Another procurement option is to divide an overall procurement into both an FMS portion and

a DCS portion, also commonly referred to as hybrid FMS/DCS. The SAMM permits FMS cases to

be prepared to support elements of a DCS procurement. This is particularly applicable to sales that

may include certain FMS-Only items in the total system package. Additionally, FMS policy permits

international partners to obtain follow-on logistics support by means of FMS for systems that were

originally procured via DCS or by DCS for systems originally procured via FMS.

Direct Commercial Sales with Foreign Military Financing (FMF) Grant

Typically, countries that receive FMF grants must use those funds via the FMS process. However,

under law, ten countries (as documented in SAMM C9.7.3 - Foreign Military Financing of Direct

Commercial Contracts (DCCs) are authorized, on a contract-by-contract basis, to use their FMF funds

in DCS contracts. This alternative was discussed earlier in this chapter under the section titled “Foreign

Military Financing (FMF) Grant Funding.”

There are very strict procedures governing the process for funding a DCS with FMF, but this

remains an option to be considered by these ten countries.

Direct Commercial Sales with United States Government Contract Administration

International partners with extensive international procurement expertise may prefer to

independently conduct their own defense procurements directly with U.S. industry. Typically, the

only USG involvement in a DCS arrangement would relate to the export license approval decision.

However, international partners should recognize they can purchase contract administration services

(CAS) from the Defense Contract Management Agency (DCMA) to obtain CAS for their DCS.

While the international partners’ government representatives may possess all the skills and

abilities to negotiate a favorable contract with U.S. industry, the subsequent process for DCS contract

administration, quality control, inspection, acceptance, and audit functions may present both a logistical

and nancial barrier. The U.S. contractor may perform work at multiple geographically-dispersed

locations. As such, it may be difcult and expensive for the international partners’ representatives to

conduct these functions throughout the United States.

Acquiring CAS from DCMA for self-negotiated DCS may be a cost-effective option to support

DCS. Under this approach, upon receipt of a LOR, DCMA would develop a case for the cost of its

CAS in support of the particular DCS. Under the case, DCMA uses its existing contract administration

infrastructure to perform CAS on behalf of the international partner.

Direct Commercial Sales with Offsets

International partners electing to conduct their defense procurement via DCS may also choose to

require industry to provide an offset in association with the sale. The limitation is that DCS contracts

funded by USG FMF, or other non-repayable funds, cannot include an offset agreement.

Traditional Direct Commercial Sales

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Traditional DCS offers the international partner the greatest degree of direct involvement in their

U.S.-sourced defense procurement. In DCS, the international partner directly interfaces with the

contractor on all elements of the contract without the DOD being an intermediary. Traditional DCS

provides a range of opportunities. However, the international partner must be prepared to accept a

signicant level of responsibility.

Under traditional DCS, the USG essentially has no direct involvement in the procurement process,

except for one essential element–the export license. For a DCS of defense articles or services, the

U.S. company that is preparing to enter a sales contract with the international partner must rst obtain

USG approval for the sale. This approval is indicated in the form of an approved export license. More

detailed information on the export license process is contained in Chapter 7.

Following export license approval, the USG generally does not participate in the DCS. License

provisos or limitations may be imposed on an export license requiring USG involvement to support

continued national security and foreign policy reviews (e.g., Technology Control Plans [TCPs]) to

control the transfer mechanism of classied information and goods, and under other limited situations.

This exclusion includes contract negotiation, contract administration, quality control, inspection,

acceptance, and audit functions. In DCS, the international partner gets what they negotiate. In general,

U.S. defense contractors will work diligently to deliver quality items and services in accordance with all

of the contract provisions. They are in business for the long-term and are very interested in maintaining

a positive relationship with each of their customers as well as maintaining a solid reputation in the

international marketplace.

Despite of all the positive intentions, the performance of major acquisition contracts will inevitably

generate a variety of issues that must be resolved. In the DCS scenario, the international partner

must be prepared to address the contractor directly to resolve any issues that arise. The promptness

and acceptability of the resolution will depend solely upon the international partner and the defense

contractor. Although the DOD may concurrently be procuring the same or similar items with the same

contractor, the DOD is not a participant in the DCS contract and therefore, has no legal authority to

direct the contractor in any aspect of DCS contract performance.

SuMMary

The FMS and DCS systems are simply different procurement methods that the international partner

may employ for the purchase of U.S. defense articles and services. In a commercial acquisition, a U.S.

contractor and an international partner enter into a direct contract in accordance with U.S. law and

regulations and provisions of international commercial law, except for export control approval and

compliance enforcement. The USG is not a party to these commercial contractual transactions. The

international partner has the responsibility to select the source and manage the contract directly with

the U.S. contractor.

Under the FMS system, the USG and the international partner enter into an agreement, the FMS

LOA, which species the terms and conditions of the sale. Except for items supplied directly from

DOD inventory, the USG purchases the desired items or services from the U.S. manufacturer on behalf

of the international partner. The DOD employs essentially the same procurement criteria as if the item/

service was being purchased for U.S. needs. The USG, not the international partner, selects the source

and manages the contract consistent with the provisions of the FAR, DFARS, and the case.

Unless the USG has determined that a specic item or service will only be offered via FMS,

there are few absolutes that dictate all countries should select exclusively either FMS or commercial

channels for a given purchase requirement. Rather, there are many considerations, unique both to the

individual international partner and to the items being procured, that are involved in such a choice.

In fact, in comparing the FMS system to the DCS system, it is important to realize that the decision

regarding a potential procurement actually has a range of possibilities other than just choosing between

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Introduction to Security Cooperation

two separate options: traditional FMS or traditional DCS. The question of whether to procure via

FMS or DCS ultimately involves a decision by the international partner about how much procurement

responsibility they are willing to assume and how much they are willing to entrust to the DOD.

The nal decision on purchasing channels varies from international partner to international partner,

and even from purchase to purchase. Given the variety of factors involved, it is important that the

international partner’s decision analyzes as many factual considerations as possible.

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reFerenceS

Contractor’s Certication and Agreement with DSCA August 2009. http://www.dsca.mil/sites/default/

les/contractor_certicationv4_0.pdf

DSCA Manual 5105.38-M. Security Assistance Management Manual (SAMM). Chaps. 2, 4, 6, 9, and

11. https://www.samm.dsca.mil/.

Guidelines for Foreign Military Financing of Direct Commercial Contracts and Contractor’s

Certication and Agreement. https://www.dsca.mil/sites/default/les/dsca_guidelines_for_

foreign_military_nancing_of_direct_commercial_contracts.pdf.

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Attachment 15-1

Foreign Military Sales–Potential Advantages and Considerations

Potential Advantages Considerations

Total package approach based on U.S. military

experience.

international partner must decide whether the

total package approach may exceed its needs or

nancial capabilities.

USG uses its own procurement procedures

and acts as procurement agent for international

partners.

Sophisticated international partner’s purchasing

staff may (or may not) be able to achieve better

overall deal by negotiating directly with the

contractor.

Proven and established logistics support for items

common to the DOD.

Contractor may be able to offer a similar range of

contractor logistics support.

Federal acquisition regulations, economic order

quantity buys, and use of GFE or GFM tends to

reduce price.

Compliance with DOD procedures may increase

lead time.

Facilitates establishment of design conguration

and enhances potential for interoperability.

international partner must decide on the degree of

standardization required for a purchase.

International partner pays only the actual cost to

the DOD (including management expenses), with

prots controlled by the FAR.

While initial LOA estimates tend, in the aggregate,

to be higher than nal LOA costs, nal costs

uctuate both up and down.

Cross-leveling in the FMS trust fund can maximize

use of the international partner’s funds.

Firm xed price contracts and xed payment

schedules can be obtained under direct

commercial contracts.

Quality control to ensure item meets MILSPECs is

done by USG personnel.

This service can be purchased under FMS for

certain commercial contracts.

Items may be available from DOD stocks in times

of emergency.

Availability is signicantly dependent on the DOD’s

own priorities and inventory positions.

Government-to-government obligation, ensuring

involvement of DOD personnel in total package

planning and sustainment concepts.

Due to the political climate, the international

partner may prefer procuring from the U.S.

contractor rather than the USG.

Total package includes training at U.S. military

schools.

International partner can procure hardware

under commercial contract and generally obtain

associated training at U.S. military schools via

FMS.

International partner customers can require offsets

in FMS-related contracts.

Is dependent on the funding source. If non-

repayable FMF, offset cost cannot be included.

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Attachment 15-2

Direct Commercial Sales–Potential Advantages and Considerations

Potential Advantages Considerations

Potential for xed delivery or xed price, with

penalty, if contractor fails.

Requires considerable experience and

sophistication by international partner’s

negotiators.

Business-to-business relationship allows

international partner to negotiate cost and contract

terms.

If closer military-to-military relationships are a

international partner’s objective, FMS provides an

avenue to achieve this objective.

Direct negotiations with contractor can result in a

quicker response.

Requires considerable experience and

sophistication by international partner negotiators.

Generally better support for nonstandard items.

Purchaser must decide upon desired degree of

standardization with U.S. forces.

More capability to tailor package to unique

international partner needs.

Tailored package may detract from standardization

desires.

Continuity of personal contacts with contractor

technical personnel.

Value of continuity must be compared to the value

of direct miltary-to-military contacts.

New equipment directly from production line.

Option exists to request only new and unused

items via FMS.

Lower prices possible under certain

circumstances.

Final price may be dependent on experience and

sophistication of international partner’s contract

negotiators.

Generally xed payment schedule, which eases

budgeting problems.

Payment schedules may be more front-loaded

than under FMS.

International partner can include offset provisions

in one contract.

International partner can negotiate offsets (directly

with contractor) and still procure under FMS.

FMS administrative surcharge and DOD

management costs can be avoided.

International partner must consider entire cost of

transaction, including its contracting staff costs and

possibly increased contract administrative costs.

Commercial purchases of some types of items

could help to create and develop a procurement

capability.

Scarcity of resources and time may not allow for

retaining procurement staff.

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Misperceptions Facts

FMS offers better assurance for approval of

transfer of technology.

Technology-release considerations are identical for

FMS and commercial sales.

Commercial sales offer a better assurance for

approval of transfer of technology.

Technology-release considerations are identical for

FMS and commercial sales.

FMS is unreliable during hostilities involving either

the user or the USG.

Foreign policy or DOD military priority decisions

affect the ow of supplies to an international

partner and can be expected to relate to the

resources involved. FMS orders may still be lled

and may receive priority support depending on the

nature of the hostilities.

FMS provides slow delivery with frequent

slippages.

The numerous built-in FMS system safeguards

do sometimes slow the procurement process,

but there are seldom slippages once delivery

schedules are established. However, in a

contingency, a potential exists to divert items from

stocks and expedite delivery.

Nonrecurring cost recoupment charges for major

defense equipment are always assessed on FMS.

Nonrecurring cost recoupment waivers may be

authorized for FMS on a case-by-case basis.

Recent history indicates a high probability of

waiver approval.

An international partner cannot have an offset

arrangement when they have an FMS case.

A international partner may negotiate a separate

arrangement with the contractor in addition to

an FMS agreement, but the USG will not be the

enforcer of offset arrangements between the

country and the commercial contractor.

No international partner control or participation is

permitted in FMS.

Selection of conguration, range, and depth of

spares, support equipment, etc. remains in control

of the international partner. Program management

review conferences are held as necessary to

ensure the international partner needs are met.

Under certain circumstances, the international

partner may participate in selected contract

discussions.

FMS system is characterized by a lack of

continuity due to military personnel rotations.

While this may be true for some cases, there are

many DOD civilians who do not rotate. Also, a

military tour is normally three to four years, about

equal to commercial executive transfer patterns.

Only FMS requires USG approval and

congressional notications [Section 36(b), AECA],

if necessary.

All items meeting AECA notication thresholds

require notication under both sales systems.

AECA, Section 36(c), applies to commercial sale

notications to Congress.

Attachment 15-3

Common Misperceptions of Foreign Military Sales or Commercial Sales

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Introduction to Security Cooperation

Attachment 15-3 (Continued)

Common Misperceptions of Foreign Military Sales or Commercial Sales

Misperceptions Facts

USG reserves the right to terminate only FMS in

the U.S. national interest but not DCS.

This applies equally to both FMS and commercial

sale systems.

DCS lacks adequate quality control.

Contractor sales depend on product reputation.

Also, USG quality control procedures may be

purchased for standard items.

Contractor involvement stops once an end item is

sold.

Contractor participation in follow-on support and

maintenance programs is common under either

commercial or FMS.

USG controls third-country sales only for items

sold under FMS

Criteria and policy are the same for items

purchased through either commercial or FMS.

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