Guide
Which contractor costs are allowable on a Foreign Military Sales contract?
contracts follow the same pricing principles as U.S. Government contracts, but the allows some costs of doing business with a foreign government that a U.S.-only contract would not carry, such as selling expenses, product support and offset costs, as long as each is allocable and reasonable. The special rules apply only when the purchaser pays with its own funds or repayable credit; grant-funded cases revert to the standard rules. Contingent fees also need the purchaser's approval.
Which contractor costs are allowable on a Foreign Military Sales contract?
Procedures, Guidance, and Information (PGI) 225.7301 states that all solicitations to industry for requirements should separately identify the requirement as being for and also indicate the specific international partner. It is important for industry to know this information, because special rules concerning cost allowability for may apply. Additionally, all awarded contracts containing requirements are to include the code in the contract.
The and provisions are intended to ensure procurement at fair and reasonable prices. In addition to protecting the interests, the and also attempt to treat contractors fairly. The provisions of subpart 225.7303-2 recognize that, in working to fulfill contract requirements, contractors may incur legitimate additional business expenses they normally would not incur in DoW-only contracts. As a result, subpart 225.7303-2 permits certain types of costs to be allowable for contracts. Although the same pricing principles are used, contract prices are not always identical to the DoW contract prices. This situation is due to slightly different rules regarding cost allowability for requirements than for DoW requirements. Examples of such allowable contract costs include the following:
- Selling expenses
- Maintaining international sales and service organizations
- Sales commissions and fees in accordance with , subpart 3.4
- Sales promotions, demonstrations, and related travel for sales to foreign governments
- Configuration studies and related technical services undertaken as a direct selling effort to a foreign country
- Product support and post-delivery service expenses
- Operations or maintenance training, or tactics films, manuals, or other related data
- Technical field services provided in a foreign country related to accident investigations, problems, operations/tactics enhancement, and related travel to foreign countries
- Offset costs
Although 225.7303-2 does permit certain costs for to be allowable, the amount claimed by the contractors must also be determined to be both an amount appropriately allocable to the respective contract and reasonable in the rate charged. 225.7303-5 limits this special cost allowability provision to procurements originating from financed with either international partner funds or repayable credits. If the is financed by grant funds such as Foreign Military Financing Program (FMFP) funds or , then the cost allowability rules default back to the standard DoW criteria.
References
SAMM
- SAMM C6.3.7.5 — Disallowance of Contingent Fees.
Related
Foreign Military Sales (FMS)
A process, authorized by the Arms Export Control Act, through which eligible foreign governments and international organizations may purchase defense articles, services, and training from the United States Government.
SAMM Glossary, as of 12 September 2026
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DFARS — Defense Federal Acquisition Regulation Supplement
SAMM Acronyms, as of 12 September 2026
FMS — Foreign Military Sale
SAMM Acronyms, as of 12 September 2026
Case Identifier
A unique six-digit identifier assigned to an Foreign Military Sales case for the purpose of identification, accounting, and data processing of each Letter of Offer and Acceptance. The case identifier consists of the two-letter country code, a one-letter designator for the Implementing Agency, and a three-letter case designator.
SAMM Glossary, as of 12 September 2026
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Federal Acquisition Regulation (FAR)
The FAR is the primary regulation for use by federal executive agencies for the acquisition of supplies and services with appropriated funds. The document, published in 1984, consolidated the major procurement regulations of various departments and agencies. The intent of the FAR is to standardize the content, decrease the volume of documents, and to achieve consistency throughout government. The principal agencies involved in putting together the FAR were DoD, the General Services Administration, and the National Aeronautics and Space Administration, the three largest buyers. The FAR is broader than just contracting and applies to all goods and services. It directs the defense program manager in many ways, including contract award procedures, acquisition planning, warranties, and establishing guidelines for competition. Besides the FAR, each agency has its supplement to describe its own particular way of doing business. The DoD supplement is called Defense FAR Supplement.
SAMM Glossary, as of 12 September 2026
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Weapon System
A combination of one or more weapons with all related equipment, materials, services, personnel, and means of delivery and deployment (if applicable) required for self-sufficiency.
SAMM Glossary, as of 12 September 2026
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LOA — Letter of Offer and Acceptance
SAMM Acronyms, as of 12 September 2026
Military Assistance Program (MAP)
That portion of the United States Security Assistance program authorized by the Foreign Assistance Act of 1961, as amended, which once provided defense articles and services to recipients on a nonreimbursable (grant) basis. Funding for MAP was consolidated under the Foreign Military Financing program beginning in Fiscal Year 1990.
SAMM Glossary, as of 12 September 2026
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Contracting Officer
A person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings. The term includes certain authorized representatives of the Contracting Officer acting within the limits of their authority as delegated by the Contracting Officer. A Contracting Officer whose primary responsibility is to enter into contracts is called a procuring contracting officer. One whose primary responsibility is to administer contracts is called an administrative contracting officer. One whose primary responsibility is to terminate contracts and/or settle terminated contracts is called a "termination contracting officer." A single contracting officer may be responsible for duties in any or all of these areas.
SAMM Glossary, as of 12 September 2026
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