The World of Foreign Military Sales

January 24, 2018

by Steve Lucianetti

According to the Defense Security Cooperation Agency (DSCA), in 2017 the United States had oversight to over $43B in Foreign Military Sales (FMS).  The number of countries that benefit from these sales are over 200.  Everyone of our NATO partners buy from the US as well as Japan, Australia and many other South American, Asian and Middle Eastern countries.  This policy basically has two objectives – to promote the mutual defense cooperation between the US and these countries and to reduce cost to the US of developing and obtaining new systems.  Currently the F-35 Joint strike Fighter is the biggest FMS program.

So where can you play a role in this acquisition area?  When a country gets approval to obtain a defense article, the country has many other areas to spend money in support of that equipment.  Training, facilities, logistics and engineering support are the main areas.  All of this is usually included in the Letter of Acceptance (LOA) that is executed by the US and the foreign nation.  So there are many areas where the DoD activity that is procuring the system for the FMS country contract for support.

This is never a fast process as the sale of weapons involves at least two bureaucracies getting approval to buy something. In building an LOA all the items and support are identified.  The USG gets Rough Order of Magnitudes (ROMs) for pricing and after adding in the cost for USG support, it is presented to the country as an LOA.  There is much discussion as once that LOA is delivered it can’t be modified quickly.  Once the LOA is in country, it then has to go through that country’s review/budget process.  I have seen that take over a year in some cases.  The process can take a long time for even signed work because funds have to be moved from that country to the USG.

Countries can choose the FMS or Direct Commercial Sales(DCS) option.  DCS is a process where the country contracts directly with a US Firm that has obtained all the proper approvals under the various laws and regulation that govern the sales of defense products to foreign countries.  The USG has no role in negotiating or administrating that contract.  Most countries chose the FMS option because the FAR/DFARs are fully applied.  In fact, the country can’t even just say I want that airplane and a contract get executed.  There either has to be a J&A or a formal letter from the country specifically directing the USG to buy that particular product from that company. That letter is a de-facto J&A and has to be reviewed and approved like a J&A.  Countries have found that using the USG contracting services usually means they save money, because the pricing for that product is subject to the same reviews as if it were for the USG.

I was the Contracting officer for two weapons that were being or had been purchased through FMS.  One had 30+ countries that had purchased the weapon.  It was such a popular weapon that production had been on going since the 70’s.  In support of that system we had to contract for support personnel in the program office that these countries wanted to provide support to their military.  Also spares and training had to be obtained.  There were integration issues as this weapon was placed on different platforms that would use the weapon.  One of the last contracts I did was an FMS case that was valued over $200M for the initial procurement of weapons along with the cost of integration.  In the future more weapons would be added and the program will be in existence for the next 20 years for that country.

The FMS contract can have many unique issues. It is subject to the political winds of the world.  For example, in the 70’s the US sold many different systems to Iran.  When the government changed, the US withdrew all support.  So those who had contracts being funded by that government probably had to deal with a termination for government convenience.

In recent years our allies in some parts of the world were viewed by the last and current US administration as being not aligned with our views (my words).  One of those countries had one of the systems I supported and at various times we were instructed to suspend support under any existing contracts.  In the case of service contracts, it caused a major headache as the companies and the USG had to figure out what to do with people until the work could be restarted.  Should there be a T for C? Or could the company continue some work that could be delivered at a later date? It became a complex dance over who could be shifted to other work versus what had to be paid for under the contract.

It was always interesting to deal with countries on FMS.  Our program office had people assigned as “FMS Case Managers” which managed the LOAs for a country. I usually dealt with the case managers but there were times when the CO was in the room with the foreign nationals discussing issues.  One always had to be aware of the cultural differences when dealing with these efforts.  It was educational but not always fun…lol.

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