Pricing duties and above-the-line costs

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1. One price, reasonably estimated

Defense Department components that sell under the Arms Export Control Act or the Foreign Assistance Act must price according to Chapter 7 of Volume 15 of the Financial Management Regulation (FMR) (FMR Vol. 15, Ch. 7, para. 2.1). They must set a single selling price for each article or service. That single price includes nonrecurring research, development and production charges, recurring procurement support, transportation where Defense transportation is approved, and the other applicable surcharges (FMR Vol. 15, Ch. 7, para. 2.1.2).

Each estimate given to a purchaser must be a reasonable approximation of the final price (FMR Vol. 15, Ch. 7, para. 2.2.1). An estimate that turns out different from the final cost does not remove the requirement to set the final price at actual cost. Components give detailed price and cost information on request, but may not disclose proprietary contractor data without the contractor’s prior authorization (FMR Vol. 15, Ch. 7, para. 2.2.2). How estimates are built is covered in how prices are estimated on an offer.

2. The offer as the pricing document

Prices are presented in Letters of Offer and Acceptance (LOAs), or in the pseudo-offers used for Building Partner Capacity cases (FMR Vol. 15, Ch. 7, para. 2.2.3). Surcharges can change without the purchaser’s prior approval, and each offer carries a note stating the administrative surcharge for each line. A substitute instrument needs a waiver from the Director of the Defense Security Cooperation Agency (DSCA), and must contain the same cost elements. New procurements for accepted cases directly cite the purchaser’s subaccount in the FMS Trust Fund, 11X8242, on the contract documents (FMR Vol. 15, Ch. 7, para. 2.2.4).

3. The case manager

Every active case must have a case manager, responsible for its total financial and logistical side (FMR Vol. 15, Ch. 7, para. 2.4.1). That means making sure pricing policy is followed and delivery reports reach the Defense Finance and Accounting Service. It also means reconciling the case financially and logistically throughout its life, and at least once a year, on the anniversary of each major case or before a review with the purchaser. The case manager’s authority over supporting activities must match those responsibilities (FMR Vol. 15, Ch. 7, para. 2.4.2).

Buying back items originally sold to a foreign government follows the procurement rules for obligating Defense appropriations (FMR Vol. 15, Ch. 7, para. 2.5). Money due may be paid into the trust fund as the foreign government instructs, applied to a case or refunded, with a buy back holding account as the audit trail. A direct exchange is allowed for a reparable item of the same type in certain circumstances.

4. Routine support and extra support

Every case receives a certain level of routine support, and its cost is recovered through the administrative surcharge (FMR Vol. 15, Ch. 7, para. 7.1.1). An implementing agency may decide that additional services directly related to the articles or services sold go beyond that routine level (FMR Vol. 15, Ch. 7, para. 7.1.2). Their cost may then go on the case as an above-the-line cost, at the purchaser’s request or on the government’s analysis of what the program needs. An auditable methodology must document all costs on those lines.

Each type of cost may be allocated only once and on only one basis to a case, and care must be taken against double charging (FMR Vol. 15, Ch. 7, para. 7.2). The manual’s manpower matrix sets out which case-related manpower functions may be funded on cases and from which source. Who pays for the people on a case is covered in who pays for the people on a case.

5. Supporting foreign security forces from operating accounts

A Comptroller budget policy makes the military departments responsible for the capabilities needed to support foreign forces. Their service members and expeditionary civilians must be able to organize, train, equip and advise foreign military forces and their supporting institutions (FMR Vol. 15, Ch. 7, para. 7.1.3). Components budget in their own operating accounts all costs for their military and civilian personnel in Afghanistan, Iraq and other countries under Defense assistance appropriations, and for reach back support. The regulation lists the costs (FMR Vol. 15, Ch. 7, para. 7.1.3.1). They include military and special pay, transportation, pre-deployment and in-theater training, forward base operating costs, life support, communications, vehicle maintenance and program management. Contracts for linguists, logistics, security and infrastructure to support those personnel in country are also included.

Where a department has discretion, some activities are paid from the assistance appropriation instead (FMR Vol. 15, Ch. 7, para. 7.1.3.2). They include DSCA’s administrative expenses for services provided under the Economy Act to the managing organization, and the Multi-National Aviation Special Project Office’s actual procurement, sustainment and technical support costs. The Army Corps of Engineers’ design, contracting and supervision costs are paid this way (FMR Vol. 15, Ch. 7, para. 7.1.3.2.3), as are working capital fund organizations’ costs for supplies or services (FMR Vol. 15, Ch. 7, para. 7.1.3.2.4). Service schools and service academies that train members of eligible foreign security forces are reimbursed at the lowest rate charged to other foreign countries, unless academy costs are waived (FMR Vol. 15, Ch. 7, para. 7.1.3.2.5 and FMR Vol. 15, Ch. 7, para. 7.1.3.2.6).

6. Transportation

Material sold to purchasers, other than working capital fund material, moves on collect commercial bills of lading as far as possible (FMR Vol. 15, Ch. 7, para. 2.3). Where government bills of lading are used, they must be annotated that the government rate provision of the Interstate Commerce Act does not apply and normal commercial rates are to be billed to the government. Guidance on using the Defense Transportation System for sales and capacity building cases sits in the manual’s transportation chapters (FMR Vol. 15, Ch. 7, para. 2.3).

Key terms

Single selling price	The one price for an article or service that includes all applicable charges.
Case manager	The person responsible for the total financial and logistical aspects of a case.
Above-the-line cost	A service beyond routine support, charged on its own case line with an auditable method.
Operating accounts	Component accounts that carry the cost of personnel advising foreign forces under assistance appropriations.
Buy back	The government repurchase of items it earlier sold to a foreign government.

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.

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