FMS Pricing Concepts

1
FMS Pricing Concepts

• "General USG pricing policy"
• Fair
• Understandable
• Recover total cost
• AECA - statutory pricing requirements
• Uniform DoD pricing procedures

AECA
2
FMS Pricing Concepts

• SECTION 21 Sales from stock
• SECTION 22 Sales from procurement

3
Uniform DOD Pricing Procedures
DEPARTMENT OF DEFENSE FINANCIAL
MANAGEMENT REGULATION DoD 7000.14-R VOLUME
15 SECURITY ASSISTANCE POLICY AND
PROCEDURES MARCH 1993

• Price quotations
• Estimates only..as a rule
• Subject to future adjustment
• Single selling price ("roll-up")
• Letter of Offer and Acceptance (LOA)
• Add-on percentages normally not shown

4
Recovery of Costs

• The FMS program must be
• managed at no cost to the
• USG (with certain exceptions
• specifically covered by law)

130104.A.1, SAMM
5
FMS Price Formula
FMS PRICE
BASE PRICE
AUTHORIZED CHARGES

• STOCK
• CATALOG/
• STANDARD
• SERVICES
• PROCUREMENT
• (CONTRACT)

• OPERATING COSTS
• CAS
• ACCESSORIAL
• ADMIN
• LSC

• INVESTMENT COSTS
• NONRECURRING
• RDT E
• PRODUCTION

LOA
BILLING STATEMENT DD-645
6
Foreign Military SalesBuyer/Seller Relationships
United States Government
Privity
Privity
LOA
CONTRACT
Foreign Government
United States Contractor
OFFSET
No Privity
7
Pricing Acquisitions for FMSDFARS 225.7303-2

• Cost of doing business
• Selling expenses
• Maintaining international sales/services
• Sales commissions/fees
• Sales promotions, demonstrations, related
  travel
• Configuration studies related technical
  services
• Product support and post delivery service
• Operations and training
• Technical field services
• Offset costs
• Costs that are subject to advance understanding
• Change in FY96 for wholly FMF grant funded
  acquisition

8
Agents Fees/Sales Commissions

• Fees/Commissions (May exceed 50,000 per
  Contract if accepted by customer in writing
  before contract award) are allowable in DoD FMS
  Contracts under cash/FMF funded LOAs, if
  justified, supported and paid to
• A Bona-Fide Employee of a contractor or,
• A Bona-Fide Selling agency maintained by the
  contractor to obtain business
• Country must be informed of such fees, and may
  reject within 30 days of notice
• (However, such fees/commissions are unallowable
  in FMF funded direct commercial contracts.)

DFARS 225.7303-4 DSAA Guidelines for FMF of
Direct Commercial Contracts, Sec. 8.
9
Factors to Be Considered in Pricing an Item From
New Procurement

• Prime contract cost
• GFM / inventory
• GFM / contractor
• DoD funded services
• Inflation

• Contract administration services (CAS)
• Nonrecurring costs (NRC)
• Precious metals

10
Recoupment of Nonrecurring Costs (NRC)

• Non-USG purchasers shall pay fair price for DoD
  investment (DODD 2140.2)
• Waivers
• Must balance standardization with NATO, JA, AT,
  NZ
• Loss of Sale or Cost reduction for DoD - EOQ
• Blanket waivers not authorized
• Need concurrence of DSCA, USD(C), and USD(AT)
• NRC revisions
• Biennial review/Model change/30variance
• Not retroactive

11
FMS Non-Recurring Cost (NRC) Waivers

• DoD must charge FMS customer a pro-rata share of
  NRC of RD and Production for MDE
  21(e)(1)(B), AECA
• Similar policy requirement for DCS/FMS non-MDE
  was dropped in 1992
• In FY 78, reduction or waiver of charges is
  authorized for NATO, Australia, New Zealand, and
  Japan 21(e)(2)(A), AECA
• After FY 89, no NRC charges for fully FMFP-funded
  cases
  21(e)(1)(B), AECA
• After FY 96, conditional waiver is authorized for
  other FMS cases if determined that
• a sale may be lost if NRC is imposed, or
• economies of scale would reduce U.S. costs for
  such items, and savings would offset lost revenue
  21(e)(2)(B), AECA

12
Competitive Pricing for FMFP Grant Funded FMS
Acquisition

• FMS acquisitions of defense articles financed
  wholly with grant FMF must be priced on same
  costing basis as applicable to procurements of
  like items by DoD for own use
• E.g., regarding profit, overhead, IRD, bid and
  proposal and other costing elements.
• Direct Costs associated with meeting additional
  or unique requirements of foreign customers are
  allowable.
• Loadings applicable to such costs will be at
  same rates as those applicable to the DoD.
• Does not affect FMS administrative charges.

Sec. 531A, Foreign Operations, . . . Approp.
Act FY 1996, P.L. 104-107 DSAA Legislative
Update, 2/27/96. Indirect costs, e.g., mfg.
overhead, selling and general and admin.
expenses. FAR 31.203
13
FMS Price Formula
FMS PRICE
BASE PRICE
AUTHORIZED CHARGES

• STOCK
• CATALOG/
• STANDARD
• SERVICES
• PROCUREMENT
• (CONTRACT)

• OPERATING COSTS
• CAS
• ACCESSORIAL
• ADMIN
• LSC

• INVESTMENT COSTS
• NONRECURRING
• RDT E
• PRODUCTION

LOA
BILLING STATEMENT DD-645
14
TRANSPORTATION MATRIX
DTC 4
DTC 5
DTC 8
DTC 6
DTC 9
DTC 7
Rate Area
DoD Movement Point of Origin to Destination
CONUS Port of Exit
CONUS Port Aboard Vessel
Port to Port Discharged
Overseas Port Discharged
Overseas Inland Destination
Overseas Port
TBC D,K,L
TBC A, B, E
TBC H, U
TBC J
TBC F, X
TBC C, V
TBC G,Y
Europe Central American Mediterranean
6.25 2.50
7.5
10.25 6.50
11.25 7.50
14.25 10.50
1
3.75 0
0
Newfoundland, Labrador, Thule, Iceland, South
America, Far East, Africa, Near East
6.25 2.50
9.5
12.25 8.50
13.25 9.50
16.25 12.50
2
15
Logistics Support Charge (LSC)

• Manpower
• TDY
• ADP
• Printing
• Communications, utilities
• Office equipment/supplies
• Rental of office floor space
• Processing of RODs

3.1
16
Logistics Support Charge (Contd)

• Production control
• Requisition processing
• Inventory maintenance
• Administration of RODs
• Logistics management

3.1
17
Administrative Charges

• Manpower
• TDY
• ADP
• Printing
• Communications, utilities
• Office equipment/supplies
• Rental of office floor space
• SAOs - appropriate share