Foreign Military Sales

For decades and generations the United States has provided a large and viable market for military and defense contractors. Likewise, nations in the European Union have long served as a reliable and dependable market for foreign military sales by U.S-based contractors. However, the emerging markets and nations in Asia, South America, and in parts of the Middle East are now increasing military expenditures. There is tremendous potential for growth in these markets and both U.S.-based and foreign military contractors are attempting to establish themselves as major players in these regions. Firms that fail to recognize these trends may find themselves fighting over a decreasing share of worldwide military and defense spending.

U.S. firms that wish to engage in military sales to foreign nations have multiple options in how they engage with foreign nations seeking to purchase military equipment. Contractors can make sales through the government-to-government Foreign Military Sales (FMS) program or through a direct commercial sale (DCS) to the foreign customer.

The U.S. Government’s Foreign Military Sales (FMS) Program

The Foreign Military Sales is a long-established program that has been a chief component of U.S. national security. The program has seen rapid expansion in recent years due to the U.S. government’s verbal and financial commitments to enhancing the capabilities of foreign partners in anti-terrorism operations. Particularly, the governments of Iraq and Afghanistan have been engaged in building their capacity to identify and eliminate terrorists and terrorist supporters.

foreign military sales

While the FMS program is an important conduit for economic activity for U.S. contractors, it is subject to conditions, rules, and limitations as set forth in the Arms Export Control Act (AECA). Under the AECA it is United States policy to “facilitate the common defense by entering into international agreements with friendly countries which further the objective of applying agreed resources of each country to programs and projects…to achieve specific national defense requirements and the objectives of mutual control.” As such, qualifying foreign countries that have provided a letter of Request (LOR) may purchase military equipment from U.S. contractors. U.S. contractors may answer the LOR with either Pricing and Availability (P&A) information or a Letter of Offer and Acceptance (LOA).

Other programs FMS participants should maintain familiarity with include:

  • Leases and Excess Defense Articles
  • Building Partner Capacity Programs
  • End Use Monitoring
  • Special Defense Acquisition Fund
  • Direct Commercial Sales (DCS) to the Foreign Customer

So long as U.S. military and defense contractors adhere to regulatory guidance concerning a number of items, they may directly sell U.S. defense equipment, supplies, and articles to foreign purchasers without direct government oversight. Direct commercial sales (DCS) are less structured than sales that are made through the FMS program. Thus, the seller and the foreign purchaser are largely free to negotiate their own bargain. However, DCS is not necessarily in competition with FMS or an alternative to engaging in the FMS program. Rather, DCS should be thought of as being complimentary to the FMS program. As such there are a number of ways a foreign military sale can be structured including:

  • Standard DCS – In this negotiated contract the purchaser and seller are free to haggle over nearly all elements and terms. However, with this level of flexibility a significant amount of responsibility is placed on the seller. The seller must handle all negotiation, administration, and quality control responsibilities. Furthermore, in the case of non-payment or performance issues, the seller must engage directly with the purchaser.
  • Hybrid Sale using both DCS and the FMS Program – Hybrid sales can be used for a variety of purposes including when a foreign buyer desires to use DCS to purchase sustainment support for goods acquired through the Foreign Military Sales Program. Sales of this type require significant amounts of planning and coordination.
  • DCS With Outsourced Contract Management – When a non-U.S. purchaser decides that it would be too costly or logistically complex, among other reasons, to administer a contract such administration can be outsourced. The Defense Contract Management Agency (DCMA).

Several other common forms of transactions exist including Direct Commercial Contracting, DCS in tandem with the use of offsets, and DCS in tandem with articles or services provided by the United States government.

unfair competition

Rely on Experienced Foreign Military Sales Attorneys in Philadelphia

Military contractors currently are fortunate to have multiple opportunities in emerging markets throughout the world. U.S. defense contractors seeking experienced guidance in foreign military sales should immediately contact the experienced government contracting and foreign military sales attorneys of Meredith & Narine. To schedule a confidential consultation call (215) 995-2769 or contact us online today.

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