Who pays for Foreign Military Sales?

The basic U.S. law providing the authority and general rules for the conduct of Foreign Military Sales and commercial sales of defense articles, defense services, and training. The Arms Export Control Act (AECA) came into existence with the passage of the Foreign Military Sales Act (FMSA) of 1968. An amendment in the International Security Assistance and AECA of 1976 changed the name of FMSA to the AECA.

Payments made to a prime contractor during the life of a fixed-price type contract on the basis of a percentage of incurred total costs or total direct labor and material costs.

A type of account, designated by law as a “trust fund,” regardless of any other meaning of the term “trust fund.” A trust fund account is usually either a receipt, an expenditure, or a revolving fund account (trust revolving fund account).

A term of sale in which U.S. dollar currency, check, or other negotiable instrument is submitted by the customer concurrent with acceptance of an Foreign Military Sales sales offer for the full amount shown as the estimated total cost on the Letter of Offer and Acceptance.

A legal document that serves as the eligible bank's guarantee to pay DSCA if the Foreign Military Sales (FMS) partner fails to make complete and timely quarterly payments on an FMS Letter of Offer and Acceptance (LOA), in accordance with the DD 645. It is a formal independent undertaking issued by a bank to DSCA, as the "beneficiary," which specifies the responsibilities of the bank and the FMS partner and establishes the ability for DSCA to draw upon the value of the SBLC when the FMS partner does not make a complete and timely payment.

An excepted term and condition within the Foreign Military Sales case (or Letter of Offer and Acceptance). A firm commitment by a foreign government or international organization to pay the full amount of a contract for new production or for the performance of defense services which will assure the U.S. against any loss on such contract and to make funds available in such amounts and at such times as may be required by the contract, or for any damages and costs that may accrue from the cancellation of such a contract, provided that in the judgment of the DoD there is sufficient likelihood that the foreign government or international organization will have the economic resources to fulfill the commitment.

A term of sale that provides approved Foreign Military Sales (FMS) partners that are otherwise ineligible for Dependable Undertaking (DU) status with an alternative to the "Cash with Acceptance" standard term of sale. RAPS offers FMS partners on the cusp of DU eligibility a mechanism to establish a positive payment history for future Letters of Offer and Acceptance (LOAs), while mitigating risk to the USG against non-payment.

Funds that are required to cover outlays and/or deliveries that are anticipated to occur before the receipt of the first quarterly payment. These funds must accompany the accepted Letter of Offer and Acceptance.

A term of sale in which the USG collects cash in advance of the delivery of defense articles and/or the performance of defense services from DoD resources throughout the life of the case.

A term used to describe Letters of Offer and Acceptance (LOAs) that implement Cooperative Logistics Supply Support Arrangements. Two LOAs are written: a FMSO I and a FMSO II.

Pursuant to AECA Section 21(m), a defense service provided by the U.S. Air Force that provides a mechanism for partners to transfer to the DoD defense articles that were purchased under Foreign Military Sales (FMS) or purchased under Direct Commercial Sales (DCS) for sale to other partners through a Letter of Offer and Acceptance or to the DoD.

Defense articles owned by the USG which are neither procured in anticipation of military assistance or sales requirements, nor procured pursuant to a military assistance or sales order. EDA are items (except construction equipment) that are in excess of the Approved Force Acquisition Objective and Approved Force Retention Stock of all DoD components at the time such articles are dropped from inventory by the supplying agency for delivery to countries or international organizations.

Costs funded by a Research, Development, Test, and Evaluation appropriation to develop or improve a product or technology either through contract or in-house effort. NC also includes one-time costs incurred in support of previous production of a specified model and costs incurred in support of a total projected production run. See "Nonrecurring Production Costs" and "Nonrecurring Research, Development, Test, and Evaluation Costs."

Any item of Significant Military Equipment on the U.S. Munitions List having a nonrecurring research and development cost of more than $50 million or a total production cost of more than $200 million. Also defined in section 47 (6), Arms Export Control Act.

Source of funding that is provided directly from the purchaser.

Authorized in 1981 under section 51 of the Arms Export Control Act (AECA) (22 U.S.C. 2795), the SDAF is a revolving fund that finances the acquisition of defense articles and services in anticipation of their future sale to foreign governments and international organizations under the AECA.

That portion of the United States Security Assistance program authorized by the Foreign Assistance Act of 1961, as amended, which once provided defense articles and services to recipients on a nonreimbursable (grant) basis. Funding for MAP was consolidated under the Foreign Military Financing program beginning in Fiscal Year 1990.

An Foreign Military Sales (FMS) term of sale in which the USG issues a bill to the FMS purchaser at the time of delivery of defense articles or the rendering of defense services from DoD resources. This term may only be used pursuant to a written statutory determination by the Director, DSCA, who may find it in the national interest to authorize such payment. Based on presidential action, this term may also be modified to read "Payment 120 Days After Delivery."

The military department or defense agency responsible for the execution of military assistance programs. With respect to FMS, the military department or defense agency assigned responsibility by the Defense Security Cooperation Agency to prepare an LOA and to implement an FMS case. The implementing agency is responsible for the overall management of the actions that will result in delivery of the materials or services set forth in the LOA that was accepted by a foreign country or international organization.

The potential cost for which the U.S. Government would be liable if a particular Foreign Military Sales case that includes procurement contracts is terminated prior to completion.

The total value of the Letter of Offer and Acceptance at the time of calculation, which includes the cost of the materiel, services, all Indirect Pricing Components, administrative charges, and all accessorial charges.

List of dollar amounts and when they are due from the foreign customer. The payment schedule is included in the Letter of Offer and Acceptance (LOA) presented to the customer. After acceptance of the LOA, the payment schedule generally serves as the basis for billing to the customer. Changes in the estimated costs of an Foreign Military Sales case may require changes in the accompanying payment schedule.