How is a Foreign Military Sales contract structured?

Contracts for the procurement of FMS articles or services will be prepared according to FAR, DFARS, and any applicable agency subordinate supplements. The FAR, subpart 15.204-1, outlines a common format or structure to be used in federal contracts. This common contract structure is referred to as the uniform contract format.

Section A is titled “Solicitation/Contract Form.” The reason for this dual title is that the federal government may develop a draft or proposed contract that is issued when seeking offers from vendors. When used in this type application, Section A serves as a solicitation to vendors for contract offers. When the PCO is ready to accept a contract offer, Section A further serves as a contract instrument that the PCO can also sign to award the contract. In summary, Section A provides the cover page for the contract. It identifies, among other things, the contract number, the government procuring office, the contractor awarded the contract, and the government entity that will provide contract administration. Section A also bears the signatures of both the vendor’s representative, or the party making the offer, and the official from the USG that awards the contract (i.e., the PCO).

Section B is titled “Supplies or Services and Prices/Costs.” This section contains a brief description of the supplies or services that may include item numbers, National Stock Numbers (NSNs)/Part Numbers (PNs), article/service nomenclature, and quantities. Because a variety of different items or services can be purchased on the same contract, Contract Line-Item Numbers (CLINs) are used to differentiate between various items or services being procured. If there are multiple requirements for the same item or service, a subordinate indenture structure can be used in the contract breaking down the overall CLIN requirements into sub-CLIN requirements. Use of CLINs and sub-CLINs enables PCOs to differentiate the individual requirements being procured within the same contract. Experience shows implementing separate CLINs or separately identified sub-line items helps to avoid billing errors and facilitates FMS case reconciliation and closure. Use of informational sub-CLINs for FMS requirements (rather than separately identified, scheduled, or priced sub-CLINs) should be avoided as these may increase the probability that payment errors could occur. Additionally, segregating each FMS requirement into its own CLIN or sub-CLIN may be necessary to reflect different FMS prices, which may result from the provisions of DFARS, subpart 225.7303, “Pricing Acquisitions for FMS.”

The SAMM C6.3.1 states that FMS requirements can be procured on the same contract with DoW requirements. However, the DFARS subpart 204.7104 states that separate contract sub-lines (i.e., sub-CLINs) should be used in contracts where individual contract requirements will be paid by more than one funding source or have different delivery dates/destinations. For FMS contract requirements, the DoD Financial Management Regulation, Volume 15, paragraph 010302, states that new FMS procurements should directly cite the FMS trust fund account as the source of contract funding. This approach is known as direct cite funding. The fund cite code structure used in direct cite funding not only identifies the FMS trust fund, but also refers specifically to the purchasing FMS country, FMS case, and FMS line. As a result, when payments are made against the contract requirement, the fund source for those payments will be referenced directly back to the applicable LOA country, case, and line that established the requirement. Contract payments for the applicable FMS CLIN or sub-CLIN will be billed to the respective FMS case and line. This payment information will be reported to the international partner in the quarterly FMS billing statement. In order to facilitate proper FMS billing, financial reconciliation, and eventual FMS case closure, it is important that PCOs follow this process of breaking out each individual FMS contract requirement into its own respective CLIN or sub-CLIN.

Section C is titled “Description/Specifications/Statement of Work (SOW).” This is where the PCO can provide any description or specifications needed to elaborate on the Section B information. This section is particularly important when services are being purchased, because those services need to be adequately described. In some cases, this section may reference a separate SOW that is included in Section J, which is a list of attachments. SAMM C5.6.5.4.8 states that an LOA could potentially reference a separate SOW, memorandum of understanding (MOU), or performance work statement (PWS). Generally, the DoW procuring entity will develop a SOW or PWS based on the LOA requirements and then place the SOW or PWS on contract.

Section D is titled “Packaging and Marking.” This section describes packaging, packing, preservation, and marking requirements. FMS shipments are packed in accordance with SAMM C7.8, to not less than Military Level A/B as defined in MIL-STD-129 or in accordance with best commercial practices based on the mode of shipment selected. FMS requirements will need to be marked according to MILSTD-129.

Section E is titled “Inspection and Acceptance.” This section covers contract inspection, acceptance, quality assurance, and reliability requirements. LOA standard term and condition 1.2 states that the DoW will apply the same quality, audit, and inspection procedures for FMS procurements as it applies to internal DoW or U.S. military procurements. Also, LOA standard term and condition 5.1 states that the title to FMS materiel transfers at the initial shipping point. The DoW will perform inspections according to the requirements in this section of the contract. If the materiel or service meets the contract requirements, a USG representative, usually from the Defense Contract Management Agency (DCMA), will accept contract performance.

Section F is titled “Deliveries or Performance.” This section describes the time, place, and method of delivery or performance. Delivery schedules for hardware and services may be described in terms of calendar dates or specified periods of time from contract award date. The appropriate regulation clauses from the FAR, DFARS, and other agencies' supplements will be selected and inserted into Section F. Any of the international partner's unique delivery requirements will apply.

Section G is titled “Contract Administration Data.” This section will include accounting and appropriation data and contract administration information or instructions. This may include directions regarding use of Accounting Classification Reference Numbers (ACRNs) and invoicing instructions. ACRNs identify the source of funds to be used to pay for certain CLINs or sub-CLINs on the contract. As identified in the discussion concerning Section B of the contract, the overall contract requirements should be broken down using the CLIN or sub-CLIN structure based on the respective funding sources. As a result, each FMS requirement should be broken out on the contract as its own CLIN or sub-CLIN that references its own unique ACRN. For FMS, the ACRN will identify the source of funding to include the applicable country, case, and case line that will directly fund the contract requirement. Additionally, Section G of the contract will include contract payment instructions. These are instructions selected by the PCO that will be followed by the contract payment office, Defense Finance and Accounting Service (DFAS), in making payments to contractors. In the FMS case reconciliation process, these instructions are used to validate how payments should have been made under the contract. Appropriate use of contract payment instructions, especially when multiple requirements with multiple funding sources (ACRNs) are present, will help preclude erroneous payments and avoid the additional work of payment corrections. The PCO should select payment instructions from the standardized menu at DFARS 204.7108. The payment instructions should be assigned at either the contract line-item level or at the entire contract level, but not at both levels.

Section H is titled “Special Contract Requirements.” This section will include a clear statement of any special contract requirements that are not included in other sections of the uniform contract format.

Section I is titled "Contract Clauses." The PCO shall include in this section the clauses required by law or by the FAR. Most contract clauses are incorporated by reference. This means the full text of the clause is not included in the contract, which prevents the cumulative length of this section from becoming too extensive. The entire text of the standard clauses may be found in FAR part 52 and DFARS part 252. As a result, only the clause reference and title normally appear in the contract.

Section J is the list of attachments. The applicable specifications identified in Section C can typically be unwieldy, and it is common for contract personnel to include such documents as attachments to the contract. Section J simply identifies a list of such attachments. The list of attachments will include a title, date, and number of pages for each. The content of Section J may include the specification, statement of work, statement of objectives, and a list of addressees for Contract Data Requirements (CDRL) exhibits.