How To Examine Foreign Military Sales & Direct Commercial Sales

By Critical Solutions International May 18, 2017 8:44:00 AM

Offered by a number of equipment and service providers worldwide, resources taken onto the battlefield are most often purchased through one of two contract avenues: foreign military sales or direct commercial sales. Customers shop price, performance, delivery schedule, field service support, and navigate around political barriers to accommodate a variety of lifecycle logistics before finalizing a resource contract.

Discussion of resource and usageWhen resource acquisition can make or break campaign success,
how do you determine the best contracting route?

Foreign Military vs. Direct Commercial

Broadly, combat resource acquisition comes in two colors, FMS and DCS.

Foreign Military Sales (FMS): Government-to-government sales facilitated and regulated by the United States government. The FMS program’s overriding purpose is to build relationships with foreign countries by contracting on their behalf with industry providers.

Notable FMS characteristics

  • All loss or liability assumed by foreign buyer.
  • Some foreign countries prefer the association implied by FMS interaction.
  • Funds for some countries can be appropriated by Congress for Foreign Military Funding (FMF).

Direct Commercial Sales (DCS): Sales negotiated directly between foreign customer and contractor. These are subject to certain U.S. Government oversight and regulatory obstacles.

Notable DCS characteristics

  • Greater degree of flexibility for negotiating contract terms.
  • All contract elements and terms negotiated by contractor and buyer. U.S. Government is mostly sidelined.
  • Can be coupled with FMS for “hybrid” sales.

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 Significant FMS and DCS Differences

In some cases, FMS and DCS elements work in tandem with one another to fulfill customer orders, but in other cases, customer militaries choose one over the other due to fundamental factors.

  • Timing: For new requirements, the contract development and procurement process takes significantly more time for FMS than DCS. Follow-on or bundled orders, however, often favor FMS customers over DCS since the U.S. Government can defer its own deliveries to make room for foreign orders.
  • Pricing: Pricing almost always varies. That said, the final cost for FMS is often lower than initial pricing estimates, even if administrative fees tend to be higher for FMS contracts. DCS can usually provide competitive, fixed pricing options tailored to a military customer's specific or preferred terms (bonding requirements, expedited deliveries, etc.).
  • Funding: Options like U.S.C. Title 10 and Title 22 funding are generally only available for FMS contracts, but FMF can be applied to both FMS and DCS in some cases.

Support package dissonance is also important when determining which contracting method is appropriate. Discrepancies with interoperability, configuration specifications, and DoD requirements all come into play.

The Red Tape Similarities

Both FMS and DCS contracts require navigating a number of international regulatory hoops. Elements such as export restrictions can entangle orders, sole source contract issues become speed bumps, and international political strife is ever-present. Fortunately for the U.S. Government and military contractors, FMS and DCS should be considered complementary rather than in competition.

Both FMS and DCS are integral to safeguarding U.S. national security and furthering foreign policy objectives, and the market continues to grow regardless of contract avenue. According to a report released by the Defense Security Cooperation Agency (DCSA) in 2014, government-to-government military sales were approximately $10-12 billion in 2006. In 2012, the figure was almost $70 billion, and DCS figures are estimated to be even more staggering.

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Category: Route Clearance, Defense Purchasing, Insights

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