The U.S. conducts Security Cooperation business with over 200 countries and international organizations around the world. We typically refer to specific Security Cooperation activities, such as sales of defense articles and services, as “programs” and conduct them under two primary U.S. legislative authorities: The Arms Export Control Act (AECA) (22 U.S.C. 2751 et seq.), as amended, and the Foreign Assistance Act of 1961 (FAA), as amended (22 U.S.C 2151 et seq.). Under these authorities, there are several methods available to provide foreign partners with U.S. defense articles and services. The most commonly used method is Foreign Military Sales (FMS) - but other alternatives might also be available to meet your country’s requirements. For any given purchase your country may be considering, there are benefits, limitations, and trade-offs associated with each of these methods.
Foreign Military Sales (FMS)
FMS is a program that allows your government to purchase defense articles and services as well as design and construction services, from the U.S. Government (USG). This program is operated on a “no-profit” and “no-loss” basis to the USG and requires an authorized representative from your government to submit a Letter of Request (LOR) to the USG for the desired defense articles and services.
Under FMS, the U.S. Department of Defense (DoD) procures defense articles and services for your country using the same acquisition process used to procure for its own military needs. This acquisition process is governed by the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). You, the foreign purchaser, benefit from U.S. DoD technical and operational expertise, procurement infrastructure, and purchasing practices. Your country also benefits from the lower unit costs that result when the U.S. DoD is able to combine your purchase with one of its own to achieve greater economy of scale. In addition, the U.S. DoD ensures your purchase takes into consideration all of the necessary training, support, and sustainment to give you the lasting operational capability you seek, known as the “Total Package Approach”. Finally, a major FMS program increases your country’s interoperability with U.S. military forces, creating potential opportunities for joint training, joint exercises, cooperation in humanitarian assistance and disaster relief, and peacekeeping operations.
FMS requires a government-to-government agreement, known as a Letter of Offer and Acceptance (LOA) and also referred to as an “FMS case”. When your U.S. counterparts speak of “writing a case”, they are talking about drafting an LOA. The LOA is written by the USG and must be formally accepted by your government. The LOA specifies the items and services to be provided to your country and an estimated cost and timeframe for doing so. The USG may supply items from its own stocks or it may enter into a contract with a defense contractor to obtain the items on your behalf. Any contracts with U.S. defense contractors, if needed, will be written by the USG using standard USG competitive contracting procedures, to include robust oversight and auditing. The contract will be between the USG and the U.S. defense contractor. The USG then provides the equipment or service to your country as agreed in the government-to-government LOA. FMS customers are not legal participants in the procurement contract.
By Policy, the USG does not conduct FMS for profit. By U.S. law, the USG may not incur debt on an FMS sale to your country. The LOA will require that your country pay the full cost associated with the FMS sale - which includes the cost of the defense equipment/services and any costs incurred by the USG while providing you with the defense equipment/services. We must ensure that, when the equipment or service is delivered and the case is closed, the USG has neither made a profit nor passed a debt to the U.S. taxpayer.
To build and re-build the administrative infrastructure necessary to support individual FMS cases would be a slow process and very costly to our foreign partners. Therefore, the USG maintains a standing infrastructure at the DoD level, within each of the Military Departments (MILDEPs), and within select other DoD organizations that conduct FMS. That standing infrastructure - skilled employees, information technology systems, offices, etc. - is funded by an administrative surcharge applied to every FMS case. The FMS administrative surcharge fund is managed by the Defense Security Cooperation Agency (DSCA) under the oversight of the DoD Comptroller.
For additional general information on the FMS process, see SAMM Chapter 4.
Direct Commercial Sale (DCS)
DCS involves commercial contracts negotiated directly between your country and a U.S. defense contractor. DCS agreements are not administered by the USG and do not involve a government-to-government agreement. Instead, you deal with the U.S. contractor and that contractor is responsible for obtaining an export license from the Office of Defense Trade Controls, within the U.S. Department of State, to conduct each sale. The regulations for DCS are contained in the U.S. International Traffic in Arms Regulations (ITAR).
DCS is sometimes selected as an alternative to FMS when: a purchasing government's military requirements are significantly different from standard U.S. configurations; a purchasing government has a sufficiently sophisticated procurement staff with experience in defense systems; or when a purchasing government is seeking to establish a relationship between a U.S. manufacturer and its own domestic industry.
An extensive comparison of the advantages of FMS and DCS has been compiled and published by the Defense Institute of Security Cooperation Studies (DISCS – formerly known as DISAM) in Chapter 15 of its textbook, “The Management of Security Cooperation” - also referred to as “The Green Book”.
The U.S. DoD is generally neutral as to whether a sale should be accomplished using the FMS or the DCS process. However, as a matter of policy, the USG will not engage a potential FMS case with your country if you are already engaged in DCS discussions with a U.S. contractor. Please refer to the DSCA Policy Letter on concurrent FMS and Commercial Negotiations
There are times when the DoD requires that a purchase be accomplished through the FMS system. For example, the DoD requires all U.S. military training to be obtained through FMS. The DoD may also require defense articles to be sold “FMS-only.” Two common reasons for this are to ensure the security of sensitive technologies and the control of weapons and munitions to prevent proliferation. The cognizant U.S. MILDEP (Army, Navy, Air Force), or the U.S. manufacturer, will tell you whether or not a particular item is FMS-only.
It is possible to separate the FMS-only portions of a purchase from those portions permitted to be sold via DCS. This process is common for a foreign government to mix FMS and DCS when making major purchases of complex systems, such as aircraft. These are known as hybrid sales and might, for example, involve purchase of an airframe through DCS, and avionics, weapons, and training through FMS. If you are initiating a DCS purchase with a company and expect that it will (or might) include items that will be purchased via the FMS system, you should contact the appropriate U.S. MILDEP or DSCA as early as possible. The delivery timeline of your DCS end-item will likely depend in great measure upon FMS items being integrated first, or upon FMS training being provided at the appropriate time. It is therefore important that you discuss your larger purchase plans and your operational objectives with the appropriate MILDEP or DSCA to obtain an expert assessment and firm understanding of the FMS timeline and any potential issues. The defense contractor you are working with may not have full knowledge of Military Department plans and timelines. Ultimately, the best source of information on any equipment that is to be provided by the USG is the USG itself.
The USG may lease defense articles to another country for temporary use (not to exceed five years). In order to be eligible for lease, an item must not be needed for USG use during the course of the lease and is generally limited to investment (non-consumable) type items. Countries may use a lease to meet a short-term need or to fill a critical defense requirement while waiting for a delivery of items purchased through FMS or DCS. Leases can also be entered into for a variety of other purposes, including cooperative research or development, military exercises, and communications or electronics interface projects. More detail on leases can be found in Section 11.6. of the SAMM.
Excess Defense Articles (EDA)
When defense articles are declared excess by the U.S. DoD, they may be sold through FMS or by grant to countries eligible to receive EDA. Keep in mind however, that not all excess DoD articles are made available for sale or grant; and U.S. government agencies are given the first opportunity to acquire EDA. For EDA sales to foreign customers, prices usually range from 5% to 50% of the original acquisition value, depending on the condition of the item. EDA is transferred on an “as-is, where-is” basis. This means that your country will be required to pay any repair and refurbishment costs and, generally, all transportation costs associated with getting the EDA to your country. More detail on EDA can be found in Section 11.3. of the SAMM.
The above options may be used in different combinations to satisfy your country’s unique requirements. A Security Cooperation program might consist of some items purchased through FMS, additional items through DCS, and still others obtained via lease or EDA. The USG can work with you to help you achieve the best “fit” for your needs.
The USG may sell, grant, or lease defense articles and services to a country or international organization only if the President makes a determination that the prospective purchaser is eligible based on criteria summarized in SAMM Section 4.1. and SAMM Table C4.T2. contains a list of all countries, annotating those that are currently eligible or ineligible to participate in the U.S. FMS program.
For countries determined by the President to be eligible to participate in the U.S. FMS process, the Secretary of State determines whether the U.S. will support a given sale, grant, or lease to a country and the amount thereof. Because so many factors are taken into consideration when determining whether or not the USG will support a given request for defense articles and services - see SAMM Section 4.2. - decisions are ultimately made on a case-by-case basis. Proposed sales that include technologically or politically sensitive elements can take more time - so, as a general principle, the sooner you make the USG aware of your interest in acquiring a capability or an item, the better.