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Home News Archive Security Assistance - FMS, FMF, and IMET

Security Assistance - FMS, FMF, and IMET

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The U.S. Department of Defense (DOD), as authorized by law, engages in Security Assistance, which is broadly defined as a group of programs in which either the DOD or its contractors provide defense articles and services to certain international organizations and foreign governments "in support of national policies and objectives." Security Assistance (SA) "includes such diverse efforts as the delivery of defense weapon systems to foreign governments, U.S. Service school training to international students, U.S. personnel advice to other governments on ways to improve their internal defense capabilities, and U.S. personnel guidance and assistance in establishing infrastructures and economic bases to achieve and maintain regional stability." Defense articles, including major defense systems, subsystems, support equipment, repair parts, and publications are available under SA. Defense services, including training in U.S. military schools or through mobile training teams, construction, engineering, contract administration, program management, technical support, and repair are also avDSCA Logoailable.

Which entities participate in SA, and to what extent, are determining by the U.S. Department of State. The Defense Security Cooperation Agency (DSCA) is the implementing agency for DOD.

Within the SA umbrella there are several programs, including:

Foreign Military Sales (FMS). FMS programs are authorized by the Arms Export Control Act (AECA) and managed by DOD on a cost-plus 3.8% basis. When defense articles and/or services are required, the requesting country's representative provides a Letter of Request (LOR) to the U.S. counterpart. Copies are sent to the (Depart Bureau of Politico-Military Affairs and the DSCA. The original is furnished to the DoD Military Department or other implementing Defense Agency that will prepare the response in the form of a LOA. To encourage standardization and interoperability among U.S. and SA countries, FMS normally involves the transfer of those articles that have been fielded by U.S. forces. Under certain conditions, foreign customers can elect to co-produce or co-assemble defense articles in lieu of transfer. Also, defense articles are occasionally leased to foreign entities instead of being sold. A list of recent FMS awards can be found here.
Foreign Military Financing (FMF) grants or loans. Congress appropriates FMF funds in the International Affairs Budget, the Department of State allocates the funds for eligible foreign entities; and the DOD executes the program. According to the DSCA, "FMF helps countries meet their legitimate defense needs, promotes U.S. national security interests by strengthening coalitions with friends and allies, cements cooperative bilateral military relationships, and enhances interoperability with U.S. forces." The DSCA further notes that, "because FMF monies are used to purchase U.S. military equipment and training, FMF contributes to a strong U.S. defense industrial base, which benefits both America’s armed forces and American workers."
International Military Education and Training (IMET). According to the DSCA, the objectives of the IMET program are to further the goal of regional stability through effective, mutually beneficial military-to-military relations which culminate in increased understanding and defense cooperation between the United States and foreign countries; and to increase the ability of foreign national military and civilian personnel to absorb and maintain basic democratic values and protect internationally recognized human rights." Students are exposed to U.S. military procedures and the manner in which the military functions under civilian control.

DSCA has published several guides to help foreign customers and U.S. contractors navigate the intricacies of SA programs. In August 2009, the latest version of DSCA's Guidelines for Foreign Military Financing of Direct Commercial Contracts was published. The Guidelines establish compliance criteria for contractors participating in SA programs. Importantly, the compliance criteria include the following:

In order for a DCC to be approved for FMF funding, the defense articles purchased must be manufactured and assembled in the United States, or the defense services purchased must be performed by U.S. manufacturers and suppliers, purchased from U.S. manufacturers or suppliers, and composed of U.S.-origin materiel, components, goods, and services (hereafter “U.S. content”). Prime contractors must maintain and provide, if requested, supporting documentation for the value of both U.S. and non-U.S. origin content. In the event the purchase of a U.S. end item consists of both U.S. and non-U.S. origin content, only the value of the U.S. origin content will normally be financed.

Direct Commercial Contracts must specify all non-U.S. origin content. If not identified in the contract, non-U.S. content must be identified to DSCA by the Purchaser in supporting documents. To facilitate this:

A. The prime contractor is required to identify to the Purchaser any non-U.S. content, the corresponding value contained in the contract, and where applicable, supporting documentation to demonstrate that the USG has procured or is procuring the same non-U.S. content or non-U.S. origin items, components, or services from the same non-U.S. source for the same end item the USG has procured or is procuring. Supporting documentation should include the USG contract number(s) under which the non-U.S. content/item(s) was purchased, if appropriate, and any other pertinent information.
B. If raw materials, components, or items used in the manufacturing process are procured from both U.S. and non-U.S. sources, and are not segregated as to origin, and are incorporated on an interchangeable basis into the prime contractor’s articles or services, the actual dollar value need not be identified. Instead, a non-U.S. content estimating methodology or system (for example, an annual survey) may be used by the prime contractor. The use of such a methodology must be approved by DSCA prior to DSCA processing the DCC. 
C. The non-U.S. content of spare parts that are acquired separately by the Purchaser in a stand-alone DCC, not as part of an end item or as part of a “system” procurement, will not be approved for FMF funding. The non-U.S. content of a spare part cannot be funded under the COTS items exception unless the same spare part meets the requirement for being considered a COTS item.

To conclude, SA programs offer another sales channel to DOD contractors. There are additional compliance requirements and risks associated with the programs, as exemplified by the foregoing; however, savvy contractors are willing to accept the additional requirements and risks in return for the opportunity to diversify their customer base and to sell their products and services in the international marketplace, under the sponsorship of the U.S. Government.

 

Newsflash

In March 2009, Nick Sanders’ article “Surviving Government Audits: Have the Rules of Engagement Changed?” was published in Government Contract Costs, Pricing & Accounting Reports (4 No. 2 GCCPAR P. 11). Apogee Consulting, Inc. is proud to announce that Mr. Sanders’ article was selected for reprint and publication in Thomson West’s The New Landscape of Government Contracting.  Mr. Sanders, Apogee Consulting’s Principal Consultant, joins such distinguished contributors as Professors Steven Schooner and Christopher Yukins, Luis Victorino and John Chierachella, Joseph West and Karen Manos, Joseph Barsalona and Philip Koos and Richard Meene, and several others.  The text covers a lot of ground, ranging from the American Recovery and Reinvestment Act (ARRA) to Business Ethics and Corporate Compliance, and includes several articles on the False Claim Act and the Foreign Corrupt Practices Act.  In addition, the text includes the full text of many statutory and regulatory matters affecting Government contract compliance.

 

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