[Federal Register Volume 76, Number 203 (Thursday, October 20, 2011)]
[Pages 65186-65187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-27218]



Request for Public Comments on How the Department of Defense Can 
Improve the Way It Procures Defense Items and Defense Services in 
Support of Foreign Military Sales (FMS) Programs

AGENCY: Department of Defense (DoD).

ACTION: Request for public comments.


SUMMARY: Defense Federal Acquisition Regulation Supplement (DFARS) 
subpart 225.73--Acquisition for Foreign Military Sales (FMS) implements 
22 U.S.C. 2762 of the Arms Export Control Act (AECA) that authorizes 
DoD to enter into contracts for resale to foreign countries or 
international organizations. In a recent report signed by the Secretary 
of Defense titled ``Security Cooperation Reform Phase 1'', a 
requirement directs the Office of the Under Secretary of Defense for 
Acquisition, Technology and Logistics (OUSD(AT&L)) to seek information 
from industry on how to improve the FMS process. The report is 
available at http://www.acq.osd.mil/dpap/cpic/ic/docs/Signed_SCRTF_Report_Phase_1_-July%202011.pdf.

[[Page 65187]]

DATES: Submission of Comments: Submit written comments to the address 
shown below on or before December 2, 2011. Comments received will be 
considered by DoD in the formation of a recommendation to the Secretary 
of Defense if a revision to the regulation or policy is necessary and 

ADDRESSES: Submit comments to: Director, Defense Procurement and 
Acquisition Policy, 3060 Defense Pentagon, Washington, DC 20301-3060, 
or e-mail to [email protected].

FOR FURTHER INFORMATION CONTACT: Mr. Jeff Grover, telephone 703-697-

SUPPLEMENTARY INFORMATION: The Foreign Military Sales (FMS) Program is 
authorized under the Arms Export Control Act (AECA). The FMS program is 
an important instrument of U.S foreign policy. It allows the United 
States to provide defense articles and defense services to friendly 
countries and international organizations in order to deter and defend 
against aggression, facilitate a common defense, address security 
issues of mutual strategic concern, and to strengthen the security of 
the United States. The sales agreement between the United States and a 
foreign country or international organization is executed via a Letter 
of Offer and Acceptance (LOA). Security Assistance Management Manual, 
DoD 5105.38-M, found at http://www.dsca.osd.mil/samm/, provides 
guidance for the administration and implementation of Security 
Assistance and related activities. The articles and services acquired 
via FMS sales are procured through the Department of Defense 
Acquisition System. In the LOA, the Department of Defense (DoD) 
promises that when procuring for the purchaser, DoD will, in general, 
employ the same contract clauses, the same contract administration, and 
the same quality and audit inspection procedures as would be used in 
DoD procurements. Pricing for FMS contracts typically use the same 
principles used in pricing of other defense contracts. However, the 
application of the pricing principles in Federal Acquisition Regulation 
(FAR) parts 15 and 31 to an FMS contract may result in prices that 
differ from other defense contract prices for the same item. Direct 
costs associated with meeting a foreign customer's additional or unique 
requirements are allowable under such contracts. Indirect burden rates 
applicable to such direct costs are permitted at the same rates 
applicable to acquisitions of like items purchased by DoD for its own 
use. If the foreign government has conducted a competition resulting in 
adequate price competition as identified in FAR part 15, the 
contracting officer shall not require the submission of cost or pricing 
data. The contracting officer should consult with the foreign 
government through security assistance personnel to determine if 
adequate price competition has occurred. In accordance with the 
Presidential policy statement of April 16, 1990, DoD does not 
encourage, enter into, or commit U.S. firms to FMS offset arrangements. 
The decision whether to engage in offsets, and the responsibility for 
negotiating and implementing offset arrangements, resides with the 
companies involved. Relating to offset costs, a U.S. defense contractor 
may recover all costs incurred for offset agreements with a foreign 
government or international organization if the LOA is financed wholly 
with customer cash or repayable Foreign Military Financing (FMF) 
credits. The U.S. Government assumes no obligation to satisfy or 
administer the offset requirement or to bear any of the associated 
costs. Typically, costs not authorized under FAR part 31 are not 
allowable in pricing FMS contracts. On November 22, 2002, the Defense 
Federal Acquisition Regulation Supplement (DFARS) was amended to 
increase FMS customer participation and acquisition transparency in DoD 
contracts awarded on behalf of FMS customers. DFARS subpart 225.73 
provides authorization for FMS customers to participate in 
specifications development, delivery schedule planning, identification 
of warranties and other contractual requirements unique to the 
customer, as well as the review of pricing needed to make price-
performance tradeoffs. This DFARS change encourages customer 
participation in both the acquisition process and industry discussions. 
Customers also are allowed to participate in the contract negotiation 
process within the limitations of DFARS subpart 225.73, to the degree 
authorized by the contracting officer (CO). This section specifically 
protects against unauthorized release of proprietary data and improper 
influence on the contracting process.

Mary Overstreet,
Editor, Defense Acquisition Regulations System.
[FR Doc. 2011-27218 Filed 10-19-11; 8:45 am]