A Comparison:

1
A Comparison
Direct Commercial Sales
Foreign Military Sales

2
FMS or DCSWhich is better?
3
Sales Comparison(Billions)

• FMS

DCS
FY Traditional Pseudo Total
2009 30.66 6.5 37.2
2008 28.99 7.2 36.2
2007 18.67 3.8 22.5
2006 17.97 3 21
FY Articles Services Total
2009 40 87 127
2008 34.2 71.3 106
2007 24.5 64.2 88.7
2006 19.9 46.8 66.7
DCS Source http//www.pmddtc.state.gov/reports/65
5_intro.html
FMS Source http//www.dsca.mil/programs/biz-ops/f
actsbook/default.htm
4
Acquisition PreferenceSAMM C4.5.8

• DoD prefers that countries friendly to the US
  fill defense requirements with US origin items.

5
Acquisition Policy SAMM C4.5.8

• DoD is generally neutral whether a country
  purchases US origin defense articles through
  FMS or on a
  direct commercial basis.

6
FMS-Only DesignationSAMM C4.5.9

• USG can require FMS-Only sales
• Evaluation Criteria
• Presidential/Legislative restriction
• Political/Military relationship with purchaser
• Interoperability with US
• Complex systems integration
• Diversion of sensitive technology
• Sensitive data access

7
FMS-Only Designation

• Historical examples
• Man Portable Air Defense (MANPAD) missiles
• Global Positioning System - Precise Positioning
  Service (GPS/PPS)
• Airborne Early Warning Control (AEWC) Systems
• Certain Cryptographic Items

8
DCS Preference DesignationSAMM C4.5.10

• Companies may request DCS preference
• Approved requests valid for 1 year
• Best effort to comply
• Implementing Agency (IA) may decline LORs
• Exclusions
• Blanket order LOAs
• Support items for system sale

9
What about both FMS DCS?

• Hybrid Sale System sale total package may be
  separated into a DCS portion and a FMS portion
  SAMM C4.5.9.2.4

• Follow-on Support Common support should be
  provided even though the end items were acquired
  commercially SAMM C4.3.3

10
Can USG support DCS?SAMM C11.8

• USG may sell to U.S. companies in support of DCS
• Articles/services are
• Available only from the USG
• Commercially unavailable to meet delivery
  schedule
• Services may include transportation,
  installation, testing or certification.
• FMS surcharges applied
  to selling price

11
Concurrent NegotiationsSAMM C4.5.11

• Military services will NOT normally engage in
  FMS/DCS comparison studies
• Can be done in certain circumstances
• Countries national policy requirement
• DSCA approves policy exception for special
  circumstances

FMS
DCS
???
12
LOA WithdrawalSAMM C4.5.11.1

• LOA provided then country solicits DCS bids
• Implementing Agency should ask country its
  procurement intentions
• LOA may be withdrawn

Zap!
LOA

13
Can FMFP Fund DCS?SAMM C9.7.4.1.1

• Egypt
• Greece
• Israel
• Jordan
• Morocco

Pakistan Portugal Tunisia Turkey Yemen
http//www.dsca.mil/DSCA_memoranda/fmf_dcc_2005/Gu
idlines2005203.pdf
14
FMFP Guidelines for DCS SAMM C9.7.4

• Possible when approved by DSCA on
  contract-by-contract basis
• Normally not for standard items
• Contract over 100K
• FMFP may not pay for Offset Costs or sales
  commissions
• USG contractor oversight--strict contractor
  certifications
• http//www.dsca.mil/DSCA_memoranda/fmf_dcc_2009/Co
  ntractor_Certificationv4.pdf

15
I certify under penalty of perjury that the
foregoing certifications are complete and
accurate to the best of my knowledge based upon
(1) written representation made to me by
identifiable individuals within this company and
which representations will be maintained for six
years after receipt of the final payment made by
DFAS on this Purchase Agreement or (2) that I
have exercised personal due diligence to
ascertain that all statements in this
certification are true and correct.
VICE PRESIDENT TREASURER, COMPTROLLER, HAVING
SUPERVISORY OR OTHER SENIOR
FISCAL RESPONSIBILITIES OVER THE MAKING
OFFICIAL OF THIS PURCHASE AGREEMENT ______________
_________________ ______________________________
(Signature) (Signature)
16
FMS or DCS

• Most defense articles and services can be
  provided through either FMS or DCS
• Is one method the best for all
  procurements?
• Relationships
• Management
• Financial

17
Relationships - FMS

• Government-to-Government
• LOA between U.S. Government and purchaser
• Procurement contract between U.S. Government and
  contractor
• Direction from U.S. Government
• Disputes resolved by U.S. Government
• Report to Congress if sale meets 36(b), AECA

FMS
18
Relationships - FMS
United States Government
LOA
CONTRACT
Foreign Government
Defense Contractor
19
Relationships - DCS

• U.S. Government only involved in export license
  review
• Procurement contract between U.S. industry
  foreign government
• Contractor directly interfaces with customer
• No U.S. Government involvement
• Disputes resolved by foreign government
• Report to Congress if sale meets 36(c), AECA

DCS
20
Relationships - DCS
United States Government
L I C E N S E
Foreign Government
Defense Contractor
CONTRACT
21
http//www.pmddtc.state.gov/licenses.htm
22
Management - FMS

• DoD program mgmt Leave the driving to us
• Experienced personnel familiar with system
• Ops, logistics, engineering, contracting,
  finance, etc
• FMS charges for these mgmt services
• Administrative surcharge
• Contract administration services (CAS)
• Non-recurring costs
• Packing, crating, handling
• Transportation
• Small case management line
• Defined Services Lines

23
Management - DCS

• Foreign purchaser must assume
  this responsibility
• Requirements definition
• Contract negotiation
• Contract administration
• Technical knowledge
• Legal system
• What are the internal management costs? Will they
  exceed FMS the charges?
• Will there be additional benefits that outweigh
  additional costs?

24
Financial Issues - FMS

• LOA estimated prices What will the actual cost
  be?
• Will LOA payment schedule match actual execution
  performance profile?
• When will the case be closed?
• USG consolidates purchases for better prices
• Prompt and reliable payments to contractor

25
Financial - DCS

• May represent more risk for seller
• Freedom from FAR DFARS may reduce cost
• Less than economic quantity purchase
• Commercial banking procedures
• Prompt incremental and final billing
• Prompt contract closure

26
Range of Customer Involvement

• Traditional FMS
• Sole Source FMS
• FMS with Offsets
• Combination FMS / DCS
• DCS with FMFP
• DCS with USG contract admin
• DCS with Offsets
• Traditional DCS

27
Whats the Best Choice?
Price Time Congress Advocacy Quality
Assurance Implied Relationship Non-Standard Major
System Sale Follow-On Support End Use
Monitoring Offsets
FMS
DCS
28
FMS or DCSWhich is better?