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Why does Foreign Military Sales cost what it costs?

Updated 20 September 2026

By law the program must be managed to recover the full costs of defense articles and defense services, so a price is the U.S. Government's estimated cost of the article or service plus a set of charges that recover the cost of running the program — among them the Administrative Surcharge, currently 3.2 percent of applicable lines for lines implemented on or after June 1, 2018 (it was 3.5 percent and, before that, 3.8 percent). A purchaser of also repays a pro rata share of U.S. development and production cost, deposits money in the before the U.S. spends it on its behalf, and, when the sale is from procurement, keeps a reserve on deposit against .

Why does Foreign Military Sales cost what it costs?

The elements of the case material and/or service price can be combined into two major component categories: base price and authorized charges. The base price generally refers to the cost of the item or service (e.g., contract price, inventory price, services cost, training price). The authorized charges (see Table C9.T4. Table of Charges), on the other hand, relate to the application of a cost (often on a percentage or pro rata basis that is dependent to some degree on the value of a base price(s) or other pricing combinations) that the charges to recover total costs for the applicable services performed.

The prices entered on a document or are estimates of the expected costs of articles and/or services to be delivered sometime in the future. The objective of these estimates, developed using cost-analysis techniques, is to provide the international partner with the ’s best effort prediction of a future cost. Prices entered into the billing system eventually document the prices of the article at the time it is delivered/performed from a contractor or DOD stock inventory. In the case of articles or services coming from new procurement, the initial prices reported will typically be those incurred for made to defense contractors on behalf of the international partner. However, the exact final cost of major procurements may not be determined until all the contracts for all systems obtained under such procurements are complete. Consequently, estimates can be entered into the billing system to be replaced by the actual costs when they are determined. That is also often the case with DOD-provided services due to the challenges in reconciling the applicable logistics and financial transactions in their computer execution systems. The important point is that the components and policies to determine material and/or service price should be the same whether entered on a case or entered into the billing system. The price on the is an estimate of what the believes its cost will be. The price reported in the billing system will eventually document the actual cost incurred once that cost is known and documented.

References

Drawn exclusively from publicly available authorities.

SAMM

Public authorities

Facts referenced

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