Paying for cross-servicing transactions

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1. Three ways to pay

Support moving under the acquisition and cross-servicing subchapter of title 10 can be settled in three ways. Logistic support, supplies and services may be acquired or transferred on a reimbursement basis, by replacement-in-kind, or by exchange of supplies or services of equal value (10 U.S.C. 2344(a)). What those terms cover, and who may sign an agreement, is set out in what an acquisition and cross-servicing agreement is.

2. Reciprocal pricing principles

For reimbursable transactions, the Secretary of Defense must negotiate for two pricing principles, applied reciprocally (10 U.S.C. 2344(b)(1)). The first concerns items the supplying country buys from its own contractors for the recipient. The price must be no less favorable than the price those contractors charge the supplier’s own armed forces for identical items or services. Differences due to delivery schedules, points of delivery and similar considerations are taken into account.

The second principle covers supplies from the supplying country’s inventory, and support or services from its officers, employees or government agencies. For these, the recipient pays the same price the supplier’s own armed forces pay for identical items acquired from those government sources (10 U.S.C. 2344(b)(1)).

If the other country will not accept the principles, two fallback rules apply (10 U.S.C. 2344(b)(2)). The United States may not buy anything outside the principles unless the acquiring American forces commander determines, after price analysis, that the price is fair and reasonable. American transfers outside the principles become subject to the pricing provisions of the Arms Export Control Act. Those are the rules that govern a Foreign Military Sales case, described in what goes into the price, and what can be waived.

Some charges can be waived by agreement. Where the reciprocal principles do not already waive them, the Secretary may agree on a reciprocal basis to waive indirect costs, including charges for plant and production equipment, administrative surcharges and contract administration costs (10 U.S.C. 2344(b)(3)). The fallback pricing rules and this waiver apply equally to agreements with NATO subsidiary bodies, the United Nations Organization and regional international organizations (10 U.S.C. 2344(b)(4)).

3. What may not be exchanged

When a transaction is settled by exchange, three things are ruled out (10 U.S.C. 2344(c)). The Secretary may not transfer support in exchange for property the Defense Department is prohibited by law from acquiring. Source, byproduct or special nuclear materials, and anything else whose transfer is subject to the Atomic Energy Act of 1954, may not be transferred. Nor may chemical munitions.

4. Settling the balance

The subchapter does not let balances run indefinitely. Credits and liabilities of the United States accrued from acquisitions and transfers must be liquidated at least once every 12 months, by direct payment from the receiving entity to the supplying entity (10 U.S.C. 2345(a)). The rule runs both ways, covering what the United States owes as well as what it is owed. Payment-in-kind or exchange entitlements must be satisfied within 12 months after the date of delivery (10 U.S.C. 2345(b)).

A remedy exists for debts owed to the United States that go unpaid. Credits still unliquidated more than 18 months after delivery may be offset against any amount the Defense Department owes the same government or organization under the subchapter (10 U.S.C. 2345(c)). The offset is at the Secretary of Defense’s option and needs the Secretary of State’s concurrence. The offset amount is then credited as if it were a receipt.

Receipts go back to work. At the Secretary’s option, any receipt under an agreement is credited to the appropriation, fund or account that incurred the obligation. Alternatively it goes to a current appropriation, fund or account available for the same purposes (10 U.S.C. 2346).

5. Annual dollar ceilings

Outside periods of active hostilities involving the armed forces, the subchapter caps what the United States may accrue each fiscal year, before offsetting balances are computed (10 U.S.C. 2347(a) and 10 U.S.C. 2347(b)).

• With NATO members, NATO subsidiary bodies, the United Nations Organization and regional international organizations of which the United States is a member, reimbursable liabilities may not exceed $200,000,000. No more than $50,000,000 of that may be for the acquisition of supplies.
• With each non-NATO country that has an agreement, liabilities may not exceed $60,000,000, of which no more than $20,000,000 may be for supplies, in addition to the first limit.
• Reimbursable credits are capped at $150,000,000 for the NATO and international organization group, and at $75,000,000 for a non-NATO country, again in addition.

Two features loosen the ceilings. When the armed forces are involved in a contingency operation or a non-combat operation, the limits are waived for the purposes and duration of that operation (10 U.S.C. 2347(c)). Examples of non-combat operations are humanitarian or foreign disaster assistance and peacekeeping under chapter VI or VII of the Charter of the United Nations. Any such waiver must be explained in the annual report to Congress. Separately, sales, purchases or exchanges of petroleum, oils and lubricants are left out of the calculation altogether (10 U.S.C. 2347(d)).

6. No stockpiling to trade

One short rule prevents the authority from growing inventory. "Inventories of supplies for elements of the armed forces may not be increased for the purpose of transferring supplies under the authority of this subchapter" (10 U.S.C. 2348). The Department may not build up its stocks in order to supply partners.

7. Reading an agreement

For anyone supporting a deployed force, the pricing section explains what a partner is charged. It is the same price the supplier’s own forces pay, or a price a commander has found fair and reasonable. The liquidation rules explain why balances are settled annually. Related reciprocal arrangements for airlift, air refueling and test ranges are covered in airlift, refueling, test ranges and overseas repair.

Key terms

Replacement-in-kind	Settling a transaction by returning supplies or services of the same kind rather than paying cash.
Reciprocal pricing principles	The two rules that price transfers at what the supplier’s own forces would pay.
Liquidation	Settling accrued credits and liabilities, required at least once every 12 months.
Offset	Setting credits unpaid for 18 months against amounts the Defense Department owes the same partner.
Accrual ceilings	The annual limits on reimbursable liabilities and credits, waived for contingency and non-combat operations.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

How Sentfore supports this

Support exchanged between forces still has to be delivered, stored and accounted for in the field. Sentfore works at the delivery end of defense programs in difficult environments, providing secure movement, protective security, facilities and life support. Requirements can be sent through the contact page.